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Tax Incentives for Home Energy Efficiency Reduced

The tax bill passed by Congress slashes 2011 incentives for home energy efficiency improvements from $1,500 to $500.

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By Dan Shapley

It's all but official. Lucrative home improvement tax credits, offering to pay 30% of the cost of many energy efficiency projects, up to $1,500, will expire Dec. 31, 2010. The incentives for 2011 will be much less generous, and they will expire at the end of the year if not renewed.

With the House passing the bill late last night, President Obama is expected to sign it today, extending the Bush-era tax cuts for all tax brackets, revising the estate tax and retaining the payroll tax deduction. Under the radar during the loud national debate on the tax bill, however, was the expiration of the home energy efficiency tax incentives.

According to the American Council for an Energy-Efficient Economy:

The 2011 home improvement tax incentives will revert to the 2005-2008 levels: 10% of the cost of insulating, installing efficient windows, replacing old furnaces and air conditioners and making other home energy efficiency improvements. The incentive will be capped at $500, rather than $1,500, and anyone who has previously taken advantage of the program can't apply for incentives that exceed $500. (In other words, if you claimed $500 back in 2005 when you insulated your floors, or $1,500 in 2009 when you replaced windows, you have exhausted your tax credit; if you only claimed $300 in 2005, let's say, you can still claim $200, for a total of $500.)

Certain incentives also been tightened, so that the credit for installing efficient windows is capped at $200 (but less-efficient Energy Star windows now qualify), furnaces and boilers at $150-$200 (but they now have to be 95% efficiency, a 5 percentage point upgrade from the previous standard) and water and wood heating systems to $300.


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