Changes to the Credit

• In 2010, taxpayers could claim 30 percent of the cost of energy efficient home improvements, up to $1,500. This credit expired at the end of the 2010 tax year. On December 17, 2010, President Obama extended the tax relief through 2011, but lowered the limits to 10 percent, with a maximum limit of $500. If you received a tax credit for energy efficient home improvement in previous years, you cannot receive the credit again in 2011.
  
  

What Is a Tax Credit?

• A tax credit reduces the amount of taxes that you owe the IRS after calculating your taxable income and subtracting your deductions. There are several tax credits available to low-income taxpayers, some of which are refundable, meaning they can increase the amount of your income tax return. Unlike low-income tax credits, a credit for energy efficient upgrades to your home is not refundable. Thus, the credit will not increase the amount of your tax return, only decrease the amount of tax that you owe the IRS.
  
  

ENERGY STAR

• Generally, to receive a tax credit, you must install qualified ENERGY STAR home improvements. ENERGY STAR is a program provided by the United States Department of Energy and the United States Environmental Protection Agency to protect the environment and assist Americans with saving money. The program was created in 1992 to help promote and identify energy efficient products that reduce greenhouse gas emissions. Today, several major appliances, home electronics, lighting and office equipment have the ENERGY STAR label.
  
  

Qualified Improvements

• Newly built homes do not qualify for the credit. For older homes, if you install ENERGY STAR-qualified windows, doors and skylights in your home, you can deduct 10 percent of the cost, up to $500. Windows have a maximum credit of $200. If you install a biomass stove; heating, ventilating and air conditioning (HVAC) or water-heating system in your home, you can receive 10 percent of the cost, up to $300. Metal and asphalt roofs or insulation improvements are also included in the tax credit with a credit of 10 percent, up to $500.
  
  

Claiming the Credit

• To claim an energy efficient home improvement credit on your income taxes, you must save a copy of your receipts for the purchase and installation of each home improvement. Complete Form 5695 when you prepare your annual income tax return and attach the form to your return.