What's the difference between a tax credit and a tax deduction?

A tax deduction reduces your taxable income while a tax credit reduces the amount of tax you owe dollar for dollar.

If you get a $1000 tax deduction and you are in the 20 percent income tax bracket, that deduction reduces the taxes you owe by $200.

If you get a $1000 tax credit it reduces the amount of taxes you owe by $1000.

What tax credits are available for energy efficiency improvements to my property?

Home Improvement

Tax credits are available for the following improvements placed in service before January 1, 2008. The credits are for 10 percent of the cost of improvements and can be combined to earn up to $500 total credit per homeowner.

• Insulation and envelope improvements meeting IECC specifications
• Windows meeting IECC specifications, with a cap of $200 per homeowner. Installation costs are not included.
• Roofs that meet ENERGY STAR criteria for reflectivity and are specifically designed to reduce heat gain in your home.
• Central air conditioners or heat pumps meeting 2006 Consortium for Energy Efficiency specifications: 15 SEER and 12.5 EER), capped at $300
• Furnaces and boilers with Annual Fuel Utilization Efficiency of 95 or better, capped at $150
• Water heaters with Energy Factor of .80 or better, capped at $300
• Heat pump water heaters with an Energy Factor of 2.0 or better, capped at $300
• Ground source heat pumps meeting ENERGY STAR criteria, capped at $300

These credits were available for home improvements placed in service from January 1, 2006 through December 31, 2007. If you made any qualified home improvements in 2006, but did not claim them on your 2006 taxes, you will need to file an amended return. The home in question must be your primary residence.

Renewable Energy

Tax credits for solar electricity, solar hot water heating, and fuel cells have been extended and apply to any improvements placed in service from January 1, 2006 through December 2008. The $500 cap noted above does not apply to these credits.

• Solar electricity (called PV and including Building Integrated PV): 30 percent of materials and installation costs up to but not exceeding $2000.
• Solar hot water heating: 30 percent of materials and installation costs up to but not exceeding $2000. Systems must be certified by the Solar Rating and Certification Corporation (SRCC) or a comparable state endorsed entity. Solar hot water heating systems must provide at least half of a home's annual hot water use to be eligible.
• Fuel Cells: 30 percent of materials and installation costs up to $500 per 0.5 KW.

How do I collect my tax credits?

That's as easy as 1, 2, 3.

3. Send in your forms and relax. Think of the money you saved and enjoy your more comfortable home.

Does my state offer similar tax incentives?

Want to find out about energy efficiency and renewable energy incentives on the state level. Check out the PATH State Resources Map

Content updated on 2/29/2008