How did the New Law affect the Energy Savings Tax Credit in 2011?
Under the recent tax law pass in late December, the Tax Credit for Energy saving home improvements has been reduced in 2011. Under this new law, taxpayers will be able to get a maximum $500 lifetime credit for up to 10% of costs of making their home more efficient. That’s down substantially from the maximum $1,500 credit that covered up to 30% of expenses which taxpayers could claim in tax years 2009 and 2010. Thus, taxpayers would have to spend at least $5,000 to get the maximum credit of $500.
The new tax rules also limit how much of the federal tax credit can be awarded for various types of equipment. For example taxpayers who install new windows (energy efficient) can get a maximum $200 credit, however, after getting that credit, that taxpayer "cannot claim any tax credits for windows in future years, not even if you get even more efficient windows later or move to a new home and install such windows there."
The new limits will also affect taxpayers who make energy improvements to their homes in the current year and claim the energy credit on their 2011 tax forms. So if a taxpayer made improvements in 2010, he or she may still qualify for the larger $1,500 credit, the maximum allowed total for improvements made in 2009 and 2010.
Given the newly-reduced $500 lifetime limit, a taxpayer will not be able to claim a credit this year or in future years if the taxpayer has already claimed an energy credit of $500 or more in previous years. Many taxpayers "got a second chance to get the credit and make additional energy efficient improvements to their homes in 2009 and 2010 when the credit was temporarily increased."
Fortunately, the 30% tax credit for alternative energy systems such as solar panels has not been affected and is maintained for 2011.