Heat Wave Sweeps U.S., Reminds Taxpayers of Value of Energy Credits

Man, it’s hot. It’s like Africa hot. Tarzan couldn’t take this kind of hot. – Matthew Broderick as Eugene Morris Jerome in Biloxi Blues

And I’m in Philadelphia.

There’s an enormous heat wave stretching across the country right now. Some form of heat advisory, heat warning, or heat watch has been issued for the nearly 2000 mile stretch from Massachusetts to Oklahoma. CNN reported that there were 55 record highs reached on Wednesday and 60 records were tied.

I get it. It’s summer. It’s supposed to be hot. But not this hot. Many of us – my household included – aren’t used to this kind of heat. And it’s not simply a matter of cooling down with the flip of a switch: we don’t have central air. I’m not kidding.

We talk about putting in central air every year. We live in an old Victorian house and it’s not easy to install central air in the house because of the layout and there’s no existing duct work. It’s complicated and expensive so we keep putting it off. But every summer, there’s a week like this one that reminds me that we should think about it some more.

Unfortunately for us, waiting comes with a price. If we had gotten around to doing something last year, we could have scored a pretty nice tax credit. For 2010, the tax credit for the installation of an energy efficient air conditioner was 30% of the cost up to a maximum of $1,500. Nice, right?

The numbers for 2011 aren’t nearly as enticing. For 2011, we can claim a tax credit of 10% of the cost up to a maximum of $300. In other words, our procrastination cost us $1,200 in tax credit (gee, thanks Congress).

On the plus side, at least the energy tax credit still exists.

As part of the last minute tax deal signed into law on December 17, 2010, (the oh so wordy-titled Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010), the energy tax credits were renewed but at lower levels. Picking up on that “everything old is new again” theme that Congress has been embracing of late, the levels actually reverted the 2006 and 2007 levels.

That means that only 10% of the cost of insulation, metal and asphalt roofs and doors may qualify for the credit – up to a maximum of $500. The credit for the cost of new windows is limited to $200 while the credit for new furnaces and boilers is limited to $150. The credit for new central air conditioners, air source heat pumps, water heater and biomass stoves is limited, as I previously lamented, is capped at $300.

There is also a $500 “lifetime limit” for purposes of the credit. If you’ve taken advantage of the credit at any time from 2006 through 2010, you have to figure that amount into the limit. The total of all of your energy credits for all years combined may not exceed $500.

To qualify for most energy tax credits in 2011, installation must be completed by December 31, 2011. The improvements must be made to a home that qualifies as your principal residence. Your principal residence, for purposes of the credit, is defined where you live most of the time and can include a house, houseboat, mobile home, co-op, condo and a manufactured home. Rentals and vacation homes do not qualify for the credit. Additionally, the improvements must be made to an existing home. New construction does not qualify.

If you’re really going green, you can qualify for larger breaks. For example, if you plan to add geothermal heat pumps, residential small wind turbines or solar energy systems, the credit is equal to 30% of the cost with no upper limit. For purposes of this credit, existing homes and new construction qualify, as well as principal residences and second homes qualify. Rentals do not qualify.

If you upgrade your home to include fuel cells, the credit is equal to 30% of the cost up to $500 per .5 kW of power capacity. Existing homes and new construction qualify for this credit which is restricted to your principal residence. Rentals and second homes do not qualify.

For a complete list of qualifying energy efficient appliances and home improvements, check out the Energy Star web site.

To claim the credit, file federal form 5695 (the 2011 form isn’t available yet – this 2010 form downloads as a pdf) together with your federal income tax return. You’ll need to keep your receipts as well as the Manufacturer’s Certification Statement with your tax records.

So, despite the scaled back version, residential energy tax credits still exist. That should give you something to think about as you plot to stay cool. No matter whether you take the plunge and buy more energy efficient appliances this season or not, I hope you do what you can to get comfortable (within reason – some of you need to put some clothes on).

And if you live in one of these hot areas, be sure to check in on your neighbors – especially the elderly and the sick. It will make my mom happy. And it’s the right thing to do.

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