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What's the best use of the energy tax credit?

For most homeowners, insulation gives you the best bang for your buck, but you might want to start with an energy audit.

By Teresa Mears Feb 8, 2010 4:20PM

If you live in an older home, you may be looking at old windows, old doors, an old furnace and high power bills -- and wondering which improvement would save you the most money on energy costs.


Tax credits of up to $1,500 per homeowner, for 30% of the cost of energy-saving improvements, make 2010 a good year to tackle some of those jobs. But which ones will give you the best bang for your buck?


Most experts recommend starting with something for which you can’t get a tax credit: a home energy audit. Some cities, states and utilities will perform such audits for free. If not, the cost is usually $200 to $300. The U.S. Department of Energy has some tips, including making sure the auditor does a blower door test. You can find an energy auditor through the U.S. Environmental Protection Agency’s Energy Star site.


Which energy improvements will benefit you the most, of course, depends upon the climate, the condition of your house, and your heating or cooling costs. An online Energy Efficient Rehab Advisor can give you some tips about which improvements to consider.

Martin Holladay, at Green Building Advisor’s Musings of an Energy Nerd, also suggests starting with the home energy audit. His top three recommendations for getting the best value from your energy tax credit are air sealing, adding insulation, and replacing heating or cooling equipment.


“Although many homeowners assume that installing replacement windows will save them money, window replacement is almost never cost-effective,” he writes, noting that it could take 40 to 100 years to recoup the cost.

Homeowners most likely to see a significant improvement from new windows are those in warm climates or those in cold climates whose windows face east and west, he said.


Homeowners in cold climates might get more bang for their buck by installing new storm windows over older windows, says Gil Rudaway at HouseLogic, though the calculations to ensure the storm windows meet the energy tax credit standards are complex. He notes that a tax credit-eligible replacement window costs $500 and $1,000, but a storm window is only about $100 to $300, installed.


HouseLogic, run by the National Association of Realtors, has a number of useful articles on improvements eligible for the energy tax credit.


The Kansas City Star put together a chart showing the cost of various improvements and the amount you can save on energy if you do them. For homeowners in the Midwest, insulation is probably the best value, The Star concluded. The cost of installing insulation in the attic is $650 to $1,450 and could result in a savings of $35 to $220 a year.


In contrast, installing a new, more efficient furnace could cost $2,000 to $5,000 and would save you only $20 to $210 a year. On the other hand, if you need a new furnace, the tax credit could help you afford a more efficient one.


This Old House looked at the cost and benefits of a number of energy-efficiency improvements and talked to some homeowners who had done some less common improvements, such as installing a pellet stove or a whole-house fan. The magazine concurred with the other experts that insulation is probably the best use of tax credits for most homeowners.


The tax credit is good for furnaces, air conditioning units, air conditioners, water heaters, windows and doors, garage doors, metal and asphalt roofing, biomass stoves and some solar products. For most products, you can get the tax credit only for improvements done in 2009 or 2010. But there is a tax credit for a few items that lasts until 2016. In some cases, the credit applies only to the cost of materials and not to labor. The improvements must be for a primary residence. You can read all the rules at the Energy Star Web site.


Have you made or are you considering using the tax credit to improve your home’s energy efficiency? What improvements have you made that have saved you money?


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