If you’re planning to renovate your home, Congress included some valuable new tax breaks in the economic stimulus bill it passed this winter.
Unlike a deduction, which reduces the gross income used to calculate how much you owe, a credit comes right off the bottom line of your tax bill. So while a $1 deduction might cut your taxes by 25 or 30 cents, depending on your tax bracket, a $1 credit will reduce what you owe the government by a full $1.
The stimulus bill created two types of energy credits.
The energy efficiency tax credit covers improvements to existing homes, from new windows and furnaces, to additional insulation in the attic.
Homeowners receive a credit worth 30% of what they spend on materials, and some installation costs, up to a limit of $1,500, for purchases made in 2009 and 2010.
The renewable energy tax credit is for adding geothermal heat pumps, solar water heaters, solar panels, fuel cells and windmills to new or existing homes.
This credit is for 30% of the total cost of the project, including installation. There’s no limit on how big the credit can be and it doesn’t expire until the end of 2016.
The government’s Energy Star Web site has all the specifics on the projects and products that qualify for both credits.
Click here for a summary of all of the tax credits and other consumer benefits in the economic stimulus plan.