Category Archives: Tax Credits

Efficiency Tax Credits Drop, but Don’t Disappear

Benefit reverts to $500 lifetime cap for upgrades

By Megan McKoy-Noe, CCC 

Energy efficiency improvements are great for lowering electric bills. But sometimes the up-front cost can be a drawback. Since 2005, Congress has enacted a series of tax breaks for consumers who take steps to make their homes more energy-efficient. In December, the outgoing 111th Congress approved extending some popular efficiency tax credits through Dec. 31, 2011, although at greatly reduced levels.

“While we were hopeful that the tax credits would be higher than what was approved, we are encouraged that this valuable incentive for homeowner investment was retained,” says Leigh Faircloth, executive director of the South Carolina Association of Heating and Air Conditioning Contractors. 

The federal Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduces the total lifetime credit that can be claimed on energy efficiency improvements made between 2006 and 2011 (excluding 2008, when no credit was available) from $1,500 to $500. It also lowers the percentage of efficiency upgrade costs consumers can recover, from 30 percent in 2009-2010 to 10 percent in 2011. 

“Basically, energy efficiency tax credits revert to levels approved for 2006 and 2007, before the federal stimulus bill pumped up the program,” explains Zan McKelway, vice president of communications for the National Rural Electric Cooperative Association (NRECA). “There’s also a lifetime cap of $500 for any work that’s done. But if you haven’t applied for an energy efficiency tax credit before, this extension gives you a chance to recoup some of the costs needed to make your home more efficient.” 

There are also maximum allowances for different upgrades. For installing more efficient windows, the tax credit is limited to $200, and there’s a $300 cap for “any item of energy-efficient building property.”  Other restrictions include: 

  • Furnaces ($150): Must have at least 95 percent (up from 90 percent) annual fuel utilization efficiency (AFUE). Oil furnaces and boilers were returned to the single furnace category at 95 percent AFUE.
  • Advanced main air circulating fan ($50): Must utilize less than 2 percent of a furnace’s total energy consumption.
  • Central air conditioner ($300): Must have a seasonal energy efficiency ratio (SEER) of at least 16 and an energy efficiency rating (EER) of at least 13.
  • Air-source heat pump ($300): Must have at least a heating seasonal performance factor (HSPF) of 9, SEER of 16, and EER of 13.
  • Biomass fuel stove ($300): Must have a thermal efficiency rating of at least 75 percent  

Builders and Manufacturers Benefit, Too

The bill reinstates a credit of up to $2,000 for builders (during 2010 and 2011) of energy-efficient residences that use no more than half the energy of a 2003 national model energy code home (the credit had expired in 2009). In addition, U.S.-based manufacturers of clothes washers, dishwashers, and refrigerators will receive credits ranging from $25-$200 for efficient appliance models produced in America during 2008, 2009, and 2010. 

“While consumers cannot take these types of credits directly, these units may be promoted by manufacturers, or by state or utility efficiency programs, during the next two years,” notes the Tax Incentives Assistance Project. The group operates a website,, devoted to tracking efficiency incentives. 

Renewable Tax Credits Remain Active

Renewable energy tax credits created by the federal stimulus bill don’t expire until Dec. 31, 2016. These credits cover 30 percent of the cost of materials and installation for residential solar panels, solar water heaters, small wind turbines, and geothermal heat pumps. Details are available at

Claiming Tax Credits

Tax credits are beneficial because they directly reduce, dollar for dollar, any taxes you owe. Be sure to keep your receipts and your Manufacturer’s Certification Statement (a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit) for your records. Then claim the credit on your taxes using IRS Form 5695. 

Looking for Help?

For a list of federal, state, and local energy efficiency rebates and tax credits, visit the Database for State Incentives for Renewables & Efficiency, a project funded by the U.S. Department of Energy, at

Sources: U.S Government Printing Office, Database for State Incentives for Renewables & Efficiency,  ENERGY STAR, South Carolina Association of Heating and Air Conditioning Contractors

Megan McKoy-Noe, CCC, writes on consumer and cooperative affairs for the National Rural Electric Cooperative Association, the Arlington, Va.-based service arm of the nation’s 900-plus consumer-owned, not-for-profit electric cooperatives.