Make Hay While the Bailout is Green

Odds are, some energy-related part of your home is due for replacement: your water heater, windows, doors, roof, heat source, air conditioning, insulation or other home components.  If so, and you're a U.S. taxpayer, the time to do it is NOW, while the U.S. government will give you green to go green!  Your payback is immediate.

As part of the new economic recovery act, buying certain "green" (energy conserving) fixtures or materials for your new or existing primary residence can get you a tax credit of up to 30% of the item's cost!  That's not just a deduction folks (a reduction in your taxable income), that's a credit (a reduction in the taxes you pay) - cash in your pocket.

In general, specific energy conservation projects placed into service before the end of 2010 qualify, and you have until 2016 to do renewable energy projects like solar, wind, and geothermal.  Start now and you'll start saving electric, gas, or oil expenses as soon as possible, and be ready when the price of energy goes up again.

Great deal, right?  But wait!  There's even more money coming your way.  In some states, there are additional paybacks, including waiving of state sales tax, receiving rebates, and getting low-cost loans!

(How are these incentives paid for?)

Projects that Earn up to $1500 Back from the IRS

Want as much as $1500 off your taxes?  Just figure out which of the following home fixtures you were going to have to replace anyway, this year or next:

• Windows and Doors
• Insulation
• Roofs (Metal and Asphalt)
• Heating, Ventilating and AC (including high-efficiency furnaces and air-to-air heat pump heating/cooling systems)
• Water Heaters (non-solar; for solar, see below)
• Biomass Stoves (like wood or pellet stoves)

You can include installation costs in calculating your credit, except for windows, doors, insulation, and roofing.  On those items, the credit applies only to the item's cost.

The IRS credits your tax bill with 30% of the first $1500 you spend on all such fixtures, assuming they meet Federal energy-saving guidelines.

For more details, see energy conservation documents on the dsireusa.org site.

Bigger Projects that Earn 30% Back

Want even more back?  Investments in residential renewable energy such as solar water heaters or geothermal systems (an alternative to a furnace plus central air conditioning) also get a 30% credit no matter how much you spend.  They aren't subject to the $1500 credit limitation, and you have until 2016 to do the job.  Go on a government-encouraged home improvement spree by installing any qualifying model of these:

• Geothermal Heat Pumps (in place of a furnace, electric heat or central AC)
• Solar Panels (the electricity-generating kind)
• Solar Water Heaters (to pre-heat water before it goes to the conventional heater)
• Small Wind Energy Systems
• Fuel Cells (to store energy from wind or solar electricity sources)

Rebates, Exemptions and Cheap Loans, OH MY!

The federal tax credits are just part of the picture.  In addition, the states, the home products vendors, and the energy suppliers are teaming up to provide a variety of incentives for you to become more efficient.  (Why do they do this?  Increasing your efficiency means, for instance, that the power vendors don't have to build additional generating and transmission capacity.  They call this virtual power gain "negawatts.")

To find out what's available in your state, start with DSIRE, www.dsireusa.org.  This is a site, run by NC State University, that lists incentive programs by state, as well as federal tax incentives.  On this site, note that information on Renewable Energy is presented separately from information on Energy Efficiency.  There are large variations between states in type of incentive, dollar amount, efficiency or capacity requirements, and type of improvement.  Incentive amounts vary from hardly-worth-your-time-to-look-it-up to Zowie!  In my home state, for instance, a geothermal heat pump installation would be exempt from sales tax and qualify (assuming credit worthiness) for a loan of $15,000 as zero percent for seven years.  Also try starting with your state website and look for energy or efficiency incentives.

Steps to Take Now

The main thing is to now just sit there and ponder these improvements, but get moving.  Find out what you might be able to save by following the steps below.

1. Go down the lists of possible tax-credit-qualified products in the preceding sections, listing stuff in your home that might be close to retirement (or, as in our house, living on borrowed time).  Choose one that you suspect is costing more than it should in energy, and that you think you might be able to afford to replace in the next two years.
2. Price alternative replacements.  Go online to find the cost of a conventional, old-technology replacement and the cost of a high efficiency, "green" equivalent.  (When shopping, Energy Star labels are often, but not always, a guarantee of tax deductibility under the new rules.  Check the specifications against the Energy Star website's tax credit requirements.)
3. Price installation.  Get an estimate or quote from a local installer of that product, or from a competent tradesperson (or at least one who has an open mind and is likely to follow the installation instructions properly rather than "wing it").  Get an estimate for each of the two technologies if you think the installation costs might be different.
4. Do an analysis of the immediate (tax and incentive) payback.  Add installation cost to both the conventional and improved product prices (or take your installer's turnkey price if he or she will supply the product).  Then take 30% off the total cost of the installed high-efficiency product (except windows, doors, insulation, and roofing).  If that product now costs the same as or less than the conventional product, it's a no-brainer: go with the green product.  If there are no clear winners, look into state or local incentives and apply those as downward adjustments to the cost of the high-efficiency product.
5. Check the longer-term payback.  None of these calculations consider the energy savings the newer product provides, so if things are still unclear, do the math on much money the green product will save you over the estimated lifetime of the product.  At the point where you've saved enough to cover the higher price of the new technology, you've paid back your investment, and the remaining years in the product's life are all gravy.

It's a rare home where there isn't something which, if replaced with incentive-qualified green technology, could save you money immediately and in the future.

Pump Your Ride?

No, you can't add a geothermal heat pump to your car (unless, perhaps, you're living in your car); but you can get Uncle Sam to pump up your wallet if you buy a new hybrid or electric car.

Here's the catch: Toyota's Prius, Honda's Hybrid Civic, and similar sedans are popular enough that their buyers no longer receive government largesse.  Once a model sells over 60,000 units, the tax credit begins to diminish down to zero.  If you are in the mood for a brand-new hybrid this year and want the IRS to kick in, you'll have to buy a 2009 model of one of the following:

Table from www.irs.gov document 2009 Model Year Hybrid Vehicles.  For tax details, see Summary of the Credit for Qualified Hybrid Vehicles.

If you can find a plug-in hybrid (one where the batteries can be charged by plugging the car into an AC outlet), your credit can be in the range $2,500-$7,500.  Toyota and GM are supposed to introduct plug-in hybrids (PHEVs) in 2010.

Now, many of the vehicles in the preceding table are SUV's and some people thing that a bybrid SUV, even a little crossover one, is a bit silly given that hybrid SUV gas mileage is still poor with respect to a hybrid sedan, but it all depends.  If you really were going to buy an SUV anyway, you'll save yourself more gas and the atmosphere more carbon emissions by switching to a hybrid SUV than the average sedan user makes switching to a hybrid sedan.  A given percentage gain in MPG in a big vehicle saves more gallons of gas than an equal percentage gain in a sedan, for driving the same number of miles.  Of course, you'll do even better if you can switch from SUV to sedan!

1. How are these incentives paid for? According to The Tax Incentives Assistance Project (TIAP)"The bill pays for these provisions by restricting several oil and gas industry tax breaks, and tightening some provisions on the sale of stocks"