Tax Credit for Energy Saving Home Improvements

The tax credit for energy saving home improvements is set to expire in December 2007. Thanks to the Energy Policy Act of 2005 you can get a tax credit of up to $500 by making energy saving improvements to your home, but you only have a couple weeks left to make the improvements.

Here is a list of improvements that qualify:

Insulation that reduces loss of heat or A/C
New exterior windows (capped at $200)
“Highly efficient” central A/C, heat pump, or water heater (capped at $300)
“Highly efficient” furnace or boiler (capped at $150)
Solar-powered hot-water systems: you get a credit for 20% of the cost (capped at $2,000)

For reference, you can check out the U.S. Department of Energy article on what The Energy Policy Act of 2005 means to you.

If you need a new hot water heater, you can install a Heat Pump Hot Water Heater and reduce operating costs by 25%-45%. It will cost about $375-$400 above the installed cost of a conventional 50-gallon electric water heater , but there's potential for 1-year simple payback. Subtract the $300 tax credit from the price and the cost is almost the same as a conventional model.

If you're looking to replace your heating and A/C unit you can install a Geothermal Heat Pump and reduce operating costs 30%-60% annually. There's a $300 federal tax credit through 2007, and the cost is approximately $7500 for a 3 ton unit vs. $4,000 for a typical heat pump or central AC system, so you'll recoup the costs in 2-10 years.