A great way to cut energy costs and save up to $1,500 in federal income taxes is to make certain energy efficiency improvements to your home. You just need to be sure to pick the right product.

The credit (which is called the nonbusiness energy property credit) equals 30% of what you pay for (a) qualified energy efficiency improvements (such as, certain energy efficient insulation, windows, doors and roofs), and (b) qualified residential energy property (such as, certain energy efficient heat pumps, hot water heaters or boilers, and advanced main air circulating fans) on your principal residence. There is a $1,500 cap on aggregate credits claimed in 2009 and 2010 for all types of eligible expenditures. In other words, the $1,500 cap applies to the aggregate amount of credits claimed in both years combined.

You would need to spend $5,000 on these qualified expenditures to reap the maximum $1,500 credit. This credit is not subject to income phase-outs and can be used to offset the federal alterntive minimum tax as well as the regular federal income tax.

Note: Basically the same credit existed in 2006 and 2007, but back then it had a $500 lifetime cap. This lifetime cap does not apply (and has no impact on) the credit available in 2009 and 2010. This means you are eligible for up to $1,500 of nonbusiness energy property credits in 2009–2010, even if you previously claimed $500 of credits on your 2006 and/or 2007 return.

A good place to start your search for products that qualify for this credit is at the energystar website where you’ll find a table listing requirements for various products. Then, to ensure the product satisfies the required energy saving conditions for the nonbusiness energy credit, be sure to check the product package materials or manufacturer website before making the purchase. According to the IRS, you can rely on the manufacturer’s written certification statement, which is typically included with the product package materials or on the manufacturer’s website. You just need to keep a copy of this certification as part of your tax records.

Using the Solar, Wind, Geothermal or Fuel Cell Energy to Power Your Home

In addition to the credit on the more common type of improvements noted above, there is an even greater credit opportunity if you are interested in installing solar heating, solar energy- producing equipment, wind energy equipment, geothermal heat pumps, or fuel cell equipment. This "residential energy efficient property" (REEP) credit is equal to 30% of qualifying expenditures made to your personal residence. In many cases, there is no cap on this credit, and you may be able to obtain the credit for qualifying expenditures on a second home as well as on a primary residence. The REEP credit is not subject to income phase-outs and is available to reduce the Federal alternative minimum tax as well as the regular Federal income tax.

If you are interested in installing this type of energy saving equipment, and would like further information on the REEP credit, or on the nonbusiness energy property credit, please feel free to call us at 203-787-6527 or contact us through our website at www.bhco.com.