Get out the tool box and call an energy contractor this year: federal tax credits for energy-saving upgrades are back. The American Recovery and Reinvestment Act of 2009 signed into law by President Barack Obama on February 17, 2009, gives homeowners federal tax credits for energy-efficient materials and systems placed in service in their primary residents from January 1, 2009 through December 31, 2010. Some improvements qualify for tax credits through 2016. The Internal Revenue Service defines “placed in service” as the time when home materials are available for use. (Taxpayers will not get credit for improvements made in 2008.)

The Emergency Economic Stabilization Act of 2008 provided tax credits for 2009, but the act had a $500 limit (with additional caps for certain types of upgrades) and it only covered up to 10 percent of a tax payer’s investment. The new plan extends the program another year and raises the caps.

“Some NOVEC customers may have looked at the tax credits in the past and thought they weren’t cost-effective,” notes Stan Feuerberg, president and CEO. “The stimulus package triples the amount of financial investment a customer can get credit for. When combined with the savings in energy costs each year, energy-efficiency upgrades become much more affordable and economically prudent.”

According to the U.S. Department of Energy, tax credits directly lower a taxpayer’s federal income tax that is due and are generally more valuable than tax deductions because they reduce taxes owed dollar-for-dollar. In contrast, a tax deduction, like a home mortgage or charitable gift, lowers taxable income and may only offer small savings. For example, a $1,500 tax deduction for someone in the 25 percent tax bracket would lower taxes owed by $350, but a $1,500 tax credit for energy efficiency improvements will lower taxes owed by $1,500.

Harry and Harriet Homeowner may take advantage of tax credits for installing qualified energy-efficient windows, doors, roofs, insulation, heating and cooling systems, biomass stoves, and non-solar water heaters. These credits, which had expired at the end of 2007, are again available, with certain restrictions. Generally, taxpayers will receive credit for 30 percent of the cost of the upgrade, up to a maximum of $1,500 for 2009 and 2010 combined. For tax purposes, consumers need to save their receipts, ENERGY STAR labels, and the Manufacturer's Certification Statement. They should use IRS tax Form 5695 (2009 version), which will be available in late 2009 or early 2010.

A taxpayer who builds a new home may qualify for a tax credit for installing a geothermal heat pump, photovoltaics, solar water heater, small wind system or fuel cells, but not the tax credits for installing qualified windows, doors, insulation, roofs, heating and cooling systems, or non-solar water heaters.

Taxpayers may receive a credit for 30 percent of the cost of solar photovoltaic systems and water heaters, wind energy systems, and fuel cell or micro-turbine residential systems if they are placed in service before Dec. 31, 2016.

For more information, visit www.energystar.gov/index.cfm?c=products.pr_tax_credits or talk to a tax accountant.