Calculating the Energy Efficiency Tax Credit

I've been planning on replacing some of our windows before the end of the tax year, because they are 45 years old and also because of the tax credit for energy efficiency.  This tax credit provides a 30% tax credit, up to $1500, for the replacement of windows, doors, insulation, roofs, HVAC systems, hot water heaters, and biomass heaters.  I did the math and figured that the tax credit maxes out $5000 worth of windows.  (I'm smart, huh?)

We replaced a few windows before and so I knew approximately how much it was going to cost.  I figured out which windows are most important (we have a ton of windows in this house) so that I would spend just over $5000.  The tax credit is good for the 2010 tax year, too, and by saving a chunk of the windows for next year, we'll maximize the tax benefit and we'll have time to save more money to pay for the improvements.

I called Rudy, my window guy, and asked him to come by so we could organize the project.  He mentioned the tax benefit and then said that I would need to spend around $7200 to maximize the tax benefit.  Huh?  That doesn't sound right.  It turns out, the credit is only available on the materials, not the shipping or the installation.I hoped for a minute that Rudy was wrong so I looked it up.  He was right (after all, he is the window guy.)  The credit is good on the price of the windows only.  And around $5000 worth of product ends up with a total bill of about $7200 if you are having them installed by someone else.  When Rudy did the actual calculations, he provided me with the portion of the bill that was tax deductible along with some information that will be required to prove that they are eligible windows.

(And yes, I know that I could install them myself and save a bundle.  Honestly, though, there are days I can't even get a shower.  I want these windows in before the cold comes.  This year.)

If you've been thinking of making improvements, be sure that you understand how the tax credit is calculated.  For more information, you can look at the Energy Star website.  There are other credits available for other types of energy efficient improvements and more details can be found at the same website.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.