by Ryan McKeown, CPA, CFP®, Associate Financial Advisor,
Wealth Enhancement Group

The American Recovery and Reinvestment Act (“The Economic Stimulus Package”) that was enacted in February gave all homeowners the opportunity to make energy efficient improvements to their primary residences and receive some very attractive tax credits.
 
To explain how these credits work, the important number to remember is $5,000. In 2009 and 2010, you can spend up to $5,000 on “qualified energy efficiency improvements and property” and receive a 30% tax credit for doing so. That’s $1,500 ($5,000 x 30%) that you can receive for such purchases. The $5,000 limit is the total amount combined for both years. If you spend $5,000 in 2009 and another $5,000 in 2010, you only get a tax credit for the $5,000 you spend in 2009.
 
Some of the more common purchases that might qualify for this credit can be:

• Furnaces or Boilers
  
• Electric Heat and Water Pumps
  
• Central Air Conditioners
  
• Windows
  
• Water Heaters
  
• Insulation
  
• Doors
  
• Certain types of Roofing

For those installing renewable energy systems using sources such as solar or geothermal power can receive a 30% tax credit as well, there is no cap to the amount of spent on such improvements. This credit will be in place until 2016.
 
It is very important to check with your tax professional to make sure the purchases you are making qualify for the credit. A lot of retailers advertise heavily that there are tax savings to be had by buying these products, but may not meet the stringent requirements necessary to qualify.
 
In summary, it’s great that you can receive valuable tax savings with these purchases; however, more importantly are the long term savings that you can achieve due to the decrease in your monthly utility bills by making these improvements.