Throughout 2010 you had the option to deduct up to $1,500 if it equaled 30% of the totally installed cost of making home efficiency upgrades such as hot water heaters, window installations, and weather stripping among other measures. When we built our dream home, we took full advantage of this by installing a geo thermal unit into our home. Plus, we installed all energy efficient windows and insulation getting a very sizable tax credit for all. Nothing like going green by saving green. (Sorry for the cheesy one liner. Moving on….)
The 2011 energy tax credit is decidedly lacking in benefits. The credit was just a small part of the larger tax deal that was finally brokered between President Obama and members of Congress. The emphasis of the tax deal was on extending the Bush tax cuts or letting them expire; in other words it was about trying to avoid tax rate increases.
Others points were dealing with the status of the inheritance tax and the extension of additional unemployment benefits for the millions of jobless Americans. In the midst of this new legislation, there was a provision that extended the energy tax credit – but at little real value.
A Closer Look at the 2011 Energy Tax Credit
The 2011 energy tax credit does include a number of aspects that might shed some light on the overall situation. First and foremost, the American Recovery and Reinvestment Act was allowed to expire. This credit provided very generous terms for many people looking to save money on their taxes by making energy efficiency improvements to their homes. The credit that replaced it is only a 10% credit, up to a maximum of $500. This is a $1,000 reduction from the previous $1,500 cap. The new credit also stipulates that you can only deduct $200 of the amount on replacement windows with the EnergyStar rating.
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The requirement for energy efficient furnaces has increases 5% from 90% to 95%. You can only get a $200 credit for replacing your furnace. Additionally, there is a credit up to $300 total for installing wood heating systems.
Here’s an important point too: If you haven’t used the energy tax credit before, you do have the full $500 cap at your disposal; on the other hand, if you used the energy credit before you cannot use it at all in 2011.
Criticisms of The Energy Tax Credits
Many people are citing the deficiencies of the 2011 energy tax credit. As currently organized the credit provides little meaningful incentive for people to go out and make improvements to their homes. They do not provide the sort of reasons needed to help stimulate the economy. They amount to half-measures that waste tax dollars and do not produce solid benefits. The current cap that only gives a savings of around $200 for replacing their windows will not induce many to shell out the initial cash. The previous $1,500 cap was a different story – especially when the costs of high efficiency windows are honestly considered.
The goal to for any decent tax credit is to provide legitimate incentives for the taxpayers to take advantage of them. If this isn’t accomplished, the credit isn’t worth the paper it was drafted on. There are certainly better ways to use the capital available to help the economy recover.