Last December, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 into law. This legislation included a provision extending the tax credit you can claim for energy efficient improvements made to your home through 2011.

This tax credit was first implemented back in 2005. For the following two years, you could claim a tax credit equal to the lesser of $500 or 10% of the amount you spent for energy efficient windows, doors, insulation, and other specific items. After taking the next year off, the credit increased to 30% of the amount spent on qualifying purchases during 2009 and 2010, up to $1,500, during the two year period. We wrote about this tax break in our June 2009 newsletter.

Just as the tax credit was about to expire last December, Congress decided to extend this tax credit for one more year through 2011. They did scale back the credit from the 2009 – 2010 rules, however, and chose to use the rules that were in place for 2006 and 2007, as follows:

  • The Tax Credit is once again equal to 10% of qualifying energy efficient purchases placed in service prior to 12/31/11.  For 2009 and 2010, the credit equaled 30% of the amount spent.
  • The maximum credit for 2011 is $500 per dwelling, down from $1,500 allowed during the past two years. And for 2011, you must reduce the $500 maximum by the credit you claimed in any year since 2006.
  • The 2011 rules reinstate a cap of $50 to $300 on items such as circulating fans, furnaces, hot water boilers, heat pumps, water heaters, and central air conditioning.
  • These new rules also reinstate the $200 cap on the portion of the tax credit applicable to the installation of energy efficient windows. The $200 maximum is reduced by any credit you claimed for energy efficient windows since 2006.

A great place to find more information on this extended tax credit is www.energystar.gov. The site points out, “Please note, not all ENERGY STAR qualified products qualify for a tax credit. ENERGY STAR distinguishes energy efficient products which, although they may cost more to purchase than standard models, will pay you back in lower energy bills within a reasonable amount of time, without a tax credit.”

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