Take Advantage of Energy Tax Credits Before it’s too Late

If you’ve caught the home improvement bug, but have been putting it off until the economy recovers, it may be time to take action. There are many tax credits that expire at the end of 2010, so if you procrastinate, you may lose out on juicy rebates for the greening of your personal environment.

It’s easy being green

For the rest of the year, you can take deductions for certain energy improvements on your principal residence, including new windows and doors, insulation, HVAC equipment, and water heaters. You can deduct up to 30 percent of the cost, up to a maximum amount of $1,500, which would allow you up to $5,000 in total improvements.  You won’t receive cash back – you can only take this deduction on your tax return.  Here’s a list of eligible improvements:

• Biomass stoves. These heat a home with biomass fuel. The thermal efficiency rating must be at least 75 percent, and you can include installation costs.

• Central Air Conditioning. Baby, it’s been HOT outside this summer. If you’ve been longing to cool down the house, now’s the time – but you may have to replace your heating system, too. Installation costs are included.

• Furnaces, Boilers, and Water Heaters. Baby, it’s COLD outside during the winter. A new furnace can keep you warmer while reducing your bills.

• Insulation. These materials must be specifically designed to reduce heat loss in your home. (Insulated siding won’t qualify.)

• Roofing. New panels must have pigmented coatings or cooling granules that reduce the heat gain of the home.

• Windows, Doors, Skylights. Let the sunshine in and take a tax credit while enjoying improved insulation.

You can find specifics about each available option at the U.S. Department of Energy.

Financing with a HELOC

How are you going to pay for these improvements? Sure you’ll only be $5,000 out-of-pocket, but not everyone has that much money sitting around.  The easiest way to finance this renovation is with a home equity line of credit (HELOC), where your bank extends a line of credit against the equity in your home.  Most HELOCs have an interest-only option for the first 10 to 15 years of the loan, which means that you can pay the principal back at a comfortable pace. HELOCs are relatively easy to get, especially in amounts below $95,000. If you have future home improvement projects on your mind, make sure you get a line of credit large enough to cover them, too.

As British actor Christopher Parker said, “Procrastination is like a credit card; it’s a lot of fun until you get the bill.” Don’t delay taking advantage of this credit, or it will be gone. Once you have your HELOC for financing, you won’t have to worry about the bill. And you can spend the remaining line of credit on a whole new round of energy efficient improvements, like geothermal heat pumps, solar and wind energy systems, and fuel cells, which don’t expire until 2016.