How to Clean Up in 2009 With Tax Credits for the DIYer

• home improvement
• government
• money
• energy

Fed up by her often too-hot or too-cold home in upstate New York, Maggie Maurer insulated her attic and replaced a creaky furnace this February. Right away, her utility bill dropped by nearly a third. But Maurer is looking past those monthly savings to the moment she'll really strike it big: next tax season. A provision in the American Recovery and Reinvestment Act of 2009, passed in February, allows homeowners like Maurer to claim tax credits for up to 30 percent, up to $1500, of the cost of energy-efficient upgrades like windows, doors, roofs and insulation. "These tax credits are the primary reason I went ahead with the project," Maurer says.

Tax credits reduce the total amount taxpayers owe the government—they're more valuable than tax deductions, which offset only taxable income. Small projects like Maurer's get a limited boost, but the law contains no $1500 cap for big jobs like geothermal heat pumps, solar panels, solar water heaters and wind systems. Installation costs for these uncapped projects count toward the credit until 2016. The uncapped credits can wipe out an entire tax burden, but Uncle Sam won't cut a check for any excess. In addition to the federal tax breaks, homeowners can find state and local tax credits for energy-efficient improvements at the Database of State Incentives for Renewables and Efficiency (DSIREusa.org).

Contractors hope the credits will spur homeowner investment. "The credits have definitely given us a little bump in geothermal projects," says Troy Howard of Central Valley Mechanical in Utah. "Interest in solar and wind has picked up, and we've quoted more projects. But there's still a lot of wait-and-see, given the down economy."

Michael Rogers, senior vice president of market development with GreenHomes, the contractor and energy auditor that upgraded Maurer's house, says the tax credit has helped bring in business—to a point. "For some homeowners who already had energy-efficiency projects in mind, the tax credits have helped push them over the hump," he says. "But it's not like we've had people banging down our door because of the federal tax credits."

A possible explanation: Although the program offers a sizable incentive, taking advantage of it can be tricky. For example, not all Energy Star–certified doors and windows qualify for the program's strict standards. Categories like solar- and wind-power systems did not initially list specific models of qualifying products; manufacturers of biomass stoves were still waiting, as of April, for testing criteria to determine which stoves would qualify. Other attractive green-home improvements, like energy-efficient garage-door openers or metering devices to control power consumption, are not included.

Another potential pitfall could snare a homeowner with multiple projects in mind—within the capped category, each homeowner has only $1500 to claim, for all improvements combined. Homeowners should note that home improvements must be "placed in service" during the tax year. So, a roof installed by Dec. 31, 2010, would qualify; a new box of shingles wouldn't. Homeowners should also keep the Manufacturer's Certification Statement saying the item qualifies for the tax credit. That will make life easier during the next DIY project: filing tax returns.

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