The Tax Attic, April 30, 2009

Jerry Coon, Enrolled Agent

Jerry Coon, Enrolled Agent

Home improvement credits change

It’s home improvement time of the year. It was a cold winter and many of us are thinking about adding some insulation wherever possible, replacing a few of those leaky windows, replacing that old leaky slider,  putting in a new insulated exterior door, buying a new high-efficiency furnace, or purchasing high-efficiency appliances. This is a good opportunity to go over the dollars our federal government has available to help with these home improvements.

The American Recovery and Reinvestment Act of 2009 (ARRA) signed by President Obama in February greatly expanded the Residential Energy Credit in dollars available. In most instances, ARRA increased the percentage of cost that we are allowed as a credit in addition to also
increasing the maximum amount of dollars that we are allowed.

ARRA also further defined what products actually do qualify for the credits. Many of the products that qualified for a credit in 2007 will not qualify for the credit in 2009 because they won’t be considered high-efficient enough. The credit has been increased, but the qualifying standards have also been raised. For reference purposes, for most purchases, there was no Residential Energy Credit in 2008. That year was skipped, so if you did some updating in 2008, you may be painfully aware that there was no credit for those purchases.

I think it is fair to say the federal government once again wants us to spend money on energy-saving home improvements. For example, ARRA increased the maximum credit for installing qualifying windows to 30% of the cost up to a maximum of $1,500 credit. It’s important to note that this credit is nonrefundable. In other words, the taxpayer must have a tax liability in order to benefit from the credit-no tax, no credit. Under the old rules, only 10% of the cost qualified and the maximum credit allowed for windows was $200.

In addition to the $200 limit, there was also a $500 lifetime maximum for all improvements. This was replaced totally by the 30% of cost figure and the $1,500 maximum credit. Perhaps that is one reason every other advertisement we seem to see on TV is Jack’s Windows or Wall Side Windows.

Other types of purchases also had small limits. Advanced main air-circulating fans were limited to a $50 credit under the old rules. Under the new rules, a qualifying fan will be allowed a credit of 30% of the purchase price up to the full maximum of $1,500. Under the old rules, a natural gas, propane or oil furnace qualified for a 10% credit with a maximum of $150. Under the new rules, these same furnaces qualify for a 30% credit up to $1,500. Under the old rules, a heat pump, central air conditioner, or a stove that used biomass fuel to heat a residence or water heater qualified for 10% up to a maximum credit of $300. Under the new rules, these units will qualify for a 30% credit up to $1,500.

In addition to these regular improvements to our houses, taxpayers are allowed the 30% nonrefundable credit, with no dollar limit, for qualified solar water heaters, geothermal heat pumps, small wind energy mechanisms, and solar electric property. Fuel cells qualify for 30% but are limited to $500 for each 0.5 kilowatt of capacity. In the past, solar water heaters and geothermal heat pumps were limited to $2,000, and small wind energy mechanisms were limited to $4,000. I’m not sure how expensive these products are, but a 30% rebate on the cost should substantially soften the blow.

As of January 1, 2010, those new and more stringent high-efficiency qualifying guidelines are going into effect. They are pretty technical, but I am quite sure all of the contractors and retailers will have it down pat by the time 2010 rolls around. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns

Action Tax Service on Northland Drive in Rockford.

His e-mail address is


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