The Energy Efficiency Tax Credit: Is it Worth It? - Part 1

The US Government's Energy Star Program reports that the typical American household spends approximately $1,300 per year on home energy bills. Anyone feeling the pinch of a tight economy knows they can save money from their home energy costs just by caulking and sealing drafts (air sealing), switching from incandescent lights to compact fluorescents, or even putting an insulating jacket on their water heater. The Environmental Protection Agency estimates that homeowners can typically save up to 20% of heating and cooling costs (or up to 10% of total energy costs – or $130) by air sealing their homes through caulking and sealing drafts. Furthermore, a home owner can save up to $300 from their annual heating and cooling costs by sealing leaks and insulating their duct work.

So, for less than $200 and just a few weekend hours, you can seal holes and cracks or tape over leaky duct work and potentially save up to $400 from your annual heating and cooling costs.

In fact, any energy efficiency improvements you make now immediately lower your energy bills and will pay for themselves over time. This is especially true when you consider the major hardware components of your home:

* Windows that may have worn weather stripping or crumbling glazing that let out cooled or heated air and allow water to penetrate and rot the sills.

* Old doors that sag, fail to close snuggly, and are drafty.

Water heaters with sediment-filled or corroded tanks that will leak and fail.

* Heating, ventilation, and air conditioning systems (HVAC) built with inefficient heat-exchangers and high-wattage electronics that waste energy and cause heat.

* Wood-burning stoves or furnaces (or other "biomass fuel") that burn poorly, heat poorly, and release waste gases.

* Dark-colored roofs that trap heat and increase your cooling load.

And not enough insulation in your attic or your walls.

Admittedly, though, some home owners interested in making energy efficient upgrades will stare in sticker shock when they see the prices at their local home improvement store: A window costing $400, a water heater $800, and complete attic insulation over $1000.

But, by installing hardware with energy efficient features, particularly those that are Energy Star-rated, you will have lower energy costs beginning the day of installation and for years afterward. Energy efficient features will also enhance the market value and salability of your home and --most importantly—improve the comfort and livability of your home.

You might even qualify for the new tax credit as well.

Most home owners will be interested in the 2009 and 2010 Energy Efficiency Tax Credit for home improvements. This is a tax credit of 30% or $1,500 for energy efficient improvements that consumers make to their existing home. In order to claim the credit, the energy efficient improvements must be qualifying Energy Star-rated products and "placed in service" from January 1, 2009 through December 31, 2010.

According to the Energy Star website, www.energystar.gov:

Basically you can spend up to $5,000 during this 2 year period on a single or multiple improvements, and get 30% or $1,500 (30% of $5,000 = $1,500) back as a tax credit. If you get the entire $1,500 credit in 2009, then you can't get anything additional in 2010. The $1,500 tax credit does not double for married people filing jointly... unless both spouses owned and lived apart in separate main homes.

The tax credit does not include things like caulking and weather stripping. Rather, the tax credit aids in replacing those major hardware components of your home such as windows, doors, insulation, roofs, HVAC, non-solar water heaters, or biomass (usually wood) stoves. Some installation costs are covered, such as non-solar water heaters and Heating, Ventilation and Air Conditioning systems (HVAC).

In addition to the credit for existing homes, there is a credit with no final cost limit for more complex yet far-efficient projects that promote energy independence: geothermal heat pumps, solar water heaters, electricity-producing solar panels (PV), fuel cells, and small wind energy systems. Projects like these will receive a credit of 30% of their total cost and have until 2016 to be placed in service.