The economic stimulus bill included a number of new tax credits for home renovations. Tax credits are not the same as a deduction – tax deductions reduces your gross income and therefore you owe less income tax because you have less income; a tax credit comes right off the bottom line of the tax bill. A deduction of $1 might reduce the taxes you owe by 30 cents (depends on your tax bracket); a $1 tax credit will reduce your taxes by a full $1 – so these home renovation credits are very valuable.
The economic stimulus bill created two energy credits:
Energy Efficiency Tax Credit
This credit includes home improvements to an existing home. New windows, furnaces and additional insulation to the attic are all examples of improvements that would qualify for the energy efficiency tax credits. You receive a credit up to $1,500 for purchases made in 2009 and 2010, up to 30% of what you spend on installation and materials.
Renewable Energy Tax Credit
This credit is available for both existing and newly built homes, the credit is for 30% of the cost of the project (including installation) with no maximum limit to how big the credit can be. This credit is available until the end of 2016. The renewable energy tax credit covers things like adding geothermal heat pumps, fuel cells, windmills, solar panels and solar water heaters.
A full listing of the products and home renovations that qualify for these energy credits is available on the Government's Energy Star website.