David Kaplan wrote with the following: “A lot of personal finance blogs cover the same material. I’d like to see some quality content on the value added by investing in energy efficiencies. My prime interest is in windows/insulation and other items eligible under the current tax credit, perhaps you can consider several options.”

Since I’m not an expert in windows, insulation, or energy tax credits, I asked around and received the following. This is a guest post from Richard Barrington, a freelance writer and novelist who spent over 20 years as an investment industry executive.

There’s nothing like the holidays to make you think of cold weather — and your spending. If your wallet is as leaky as your windows, there’s a way to kill two birds with one stone. Making your home more energy efficient can pay for itself over time in the form of lower energy bills. And federal energy-efficiency tax credits, available until 31 December 2010, can significantly shorten the time it takes for these improvements to pay for themselves.

Smart financial moves are often talked about in terms of sacrifices: how a little short-term pain can lead to long-term gains. What’s refreshing about energy-efficiency tax credits is that they are a smart financial move that will actually make you feel more comfortable in the short term. Energy efficiency improvements can make your home warmer in the winter and cooler in the summer. (They can even make you feel a warm glow about yourself when you realize you’ve reduced your carbon footprint!)

Energy-efficiency tax credits: Eligible projects
Many of the available tax credits award you 30% of the cost of certain energy-efficient home improvements made to your primary residence between now and 31 December 2010. What are examples of eligible improvements?

  • Installation of biomass stoves
  • Improvements to heating, ventilating, and air conditioning systems
  • Addition or replacement of insulation
  • Replacement of metal and asphalt roofs
  • Installation of non-solar water heaters
  • Replacement windows and doors
  • Geothermal heat pumps
  • Residential wind turbines
  • Solar energy systems
  • Residential fuel cells

Different projects have different limitations on the total amount of the tax credit you can apply for, and expiration dates vary. You’ll have to go to the Energy Star website, jointly run by the US Environmental Protection Agency and the Department of Energy, for details on what counts for a tax credit.

Financial rewards of energy efficiency
The federal tax credit reduces your immediate, upfront costs from the qualified energy efficiency improvements. How much can reduced energy bills further offset your costs? Let’s look at an example of replacement windows and doors.

If you are upgrading from single-pane windows and doors, energy-efficient replacement windows and doors can save a typical homeowner between $126 and $465 per year. (Why the big spread in savings? Local utility rates and climate vary a lot, as do the size of homes and the surface area of windows and doors.)

You might think it’s the chilly northern climates that could benefit the most from replacement windows and doors, but actually the southern Atlantic region — from Maryland to Georgia — is where homeowners are estimated to save the most from this upgrade. That’s because this region can experience both sub-freezing winter conditions and extreme heat in the summer.

This is just one example of a project that offers both an immediate financial benefit — through the tax credit — and ongoing utility savings. Imagine what your monthly utility bills could look like if you did several of the projects.

The Bottom Line
As always with tax issues, you may want to check with your tax advisor to make sure you can benefit. For most people, though, these energy efficiency tax credits are a tremendous gift from the federal government — they’re basically paying you to do something that can make your home more comfortable, allow you to feel better about your carbon footprint, and save you money over time.

If you’ve been wondering where your government bailout is, you can claim it in the form of an energy efficiency tax credit.

Barrington is a regular contributor at MoneyRates. Previously at GRS, he shared how to find the right CD or money-market account and tips for sound saving and investing.

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