How to Receive Tax Credits on Insulating an Existing Home

Replacing insulation in your existing home now qualifies for a substantial federal tax credit. This tax credit will reduce the cost of your materials for insulating. The government has started a new tax credit program to encourage homeowners to invest in energy-saving "green" products. Energy efficient products will conserve energy and reduce costs to consumers by using the latest energy conservation materials available.

Difficulty: Moderate

Instructions

Things You'll Need:

• New insulation
• Receipt for insulation
• Manufacturer Certification Statement

1. Review the energy efficient tax credit savings available before purchasing new insulation. That will assist you in understanding your total materials costs. This energy efficiency tax credit was introduced in The American Recovery and Reinvestment Act of 2009. The act allows a tax credit for 30 percent of the total cost of new insulation up to a maximum limit of $1,500. For example, materials costing $1,000 will be eligible for a $60 tax credit. Any material purchases exceeding $5000 will be subject to the maximum eligible for a tax credit of $1,500.

2. Refer to the International Energy Conservation Code for building code information on insulation requirements. As long as the insulation is approved for use in standard building construction it will qualify for a tax credit. This includes only standard insulation; insulated siding is not eligible for this tax credit. The insulation must also have a 2 year warranty to qualify.

3. Obtain and install the new insulation. Maintain records of the insulation purchase. Save all receipts. Look for the Manufacturers Certification Statement and retain that information for your records as well. This certification should be included with your purchase. The IRS would like to have this kept in your records, but they will not require the certificate to be filed with taxes. This certificate is more to make sure you have purchased products that qualify for the tax credit.

4. File for this tax credit when submitting your standard year-end taxes. The form required for this tax credit is 5695. The form will not be available until the end of 2009. The energy efficiency tax credit should be claimed when filing taxes. This is a valuable tax benefit. Tax credits are a better benefit than a standard tax deduction. A tax credit of $1,500, will actually lower your taxes by $1,500. Expenses eligible for a tax deduction of $1,500 will result in only a small portion of the $1,500 being returned to the consumer.

Tips & Warnings

• This new energy tax credit replaces the previous tax credits allowable as set in the Energy Policy Act of 2005. The old policy limited the energy efficient tax credit to a maximum of $500. The new tax credit limit was increased to $1,500.
• This report is meant to serve as a general guideline. Always consult with a tax professional to receive the most up to date tax information.

Resources

• Tax Credit Qualifications
• Internal Revenue Service