Save Energy! Save Money! What you need to know about Energy Tax Credits

Saving energy in your home is green in more ways than one. Saving energy can help you save the planet. It can also save you money by lowering your energy bills and reducing your taxes. This is what you need to know about the residential energy provisions of the American Recovery and Reinvestment Act of 2009.

Taxpayers have two ways to reduce their tax bills.

1. Residential Energy Property Credit
2. Residential Energy Efficient Property Credit

Residential Energy Property Credit
This credit allows taxpayers to take a credit for 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010. These improvements include items such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems. Homeowners contemplating renovations should check to make sure that their improvements will qualify for the credit.

Residential Energy Efficient Property Credit
This energy tax credit will help individual taxpayers pay for "qualified residential alternative energy equipment." This includes solar hot water heaters, solar electric systems, geothermal heat pumps and wind turbines. The law allows for a credit equal to 30 percent of the cost of qualified property. There is no cap on this credit.

How to claim the credits

• The first step in claiming the credits takes place before doing any improvements. Check with suppliers and contractors to make sure that your plans will qualify. Be certain that windows, roofing material, or other efficiency upgrades meet the applicable requirements. You can check with the Energy Star progam.
• Keep records and all of your receipts. You should keep the product labels.
• File Form 5695 when you file your tax return.
• Enjoy your energy improvements and your tax credits.

Home Buyer Tax Credits

If you purchased a home in 2008, 2009 or 2010, you may be able to take advantage of the first-time homebuyer credit. Here's what you need to know:

• The credit only applies to homes used as a taxpayer's principal residence.
• It reduces a taxpayer's tax dollar for dollar.
• The credit is refundable. This means the credit will be paid to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

You will need to file a Form 5405 with your return. If you have already filed and did not take advantage of the credit, you can amend your return with a Form 1040X. You will also need to provide documentation such as a HUD-1 or settlement statement. Be sure to check with your CPA or tax advisor.

For more details, check out this page on the IRS website.