Energy Tax Credit 2011 – Not What It Used to Be

by Darwin on December 17, 2010

The  energy tax credit for 2011 is not nearly as generous as the credit was in 2010 when you were able to deduct up to $1500 as as long as it was 30% of the total installed cost of various home efficiency measures like window installations, hot water heaters and more.  While the 2011 tax deal Obama just signed didn’t focus much on the tax credit, but rather the lack of a tax rate increase, the inheritance tax and the extension of unemployment benefits, there is a provision in the deal for 2011 that does extend the energy tax credit but the benefit is minimal.

2011 Energy Tax Credit Details:

  • The old generous credit titled the 2009-2010 American Recovery and Reinvestment Act (ARRA) – was allowed to expire and was not renewed.
  • The new energy efficient tax credit is only a 10% credit, up to a maximum of $500.  The prior cap had been up to $1500, which will expire on Dec 31, 2010.
  • Of that, only $200 for EnergyStar windows can be applied.
  • Furnaces are only allowed to get a $200 credit and they must now be 95% efficient, more stringent than the 90% requirement from 2009-2010.
  • Wood heating systems are eligible for a max $300 credit.
  • To reiterate, of the various programs you may take advantage of, the cap is $500 total IF you haven’t taken advantage of the credit previously.
  • Anyone that took advantage of the prior tax credits cannot utilize the credit in 2011 (no double-dipping).

The 2011 Energy Tax Credit – What Would Darwin Do?

I can’t help but insert my opinion here.  The credit, as it is constructed now, is utterly stupid, like most things Congress has been enacting.  See, if you’re looking to stimulate the economy, you have to enact either meaningful, stimulative incentives, or not enact anything.  To enact a half-measure like this, it’s basically throwing away tax dollars with zero benefit.  Let me explain.  When the window tax credit was up to $1500 for instance, that was a substantial tax credit, which rightfully incentivized many homeowners to get around to installing new windows, making their homes more efficient, and pump probably $5000-$15,000 into the economy depending on the extent of their upgrade.  The dual benefit was lower energy consumption into the future, while providing manufacturers and installers with much needed revenues.

$200 is not going to push someone over the threshold to buy windows.  At that level, people were either going to replace the windows or they weren’t, so it’s money just thrown down the drain – very similar to cash for clunkers where people that were going to buy a new car anyway were rewarded for doing so with taxpayer dollars.

Will You Be Using the Energy Tax Credit in 2011?

{ 29 comments… read them below or add one }

retirebyforty December 18, 2010 at 9:44 pm

I called a HVAC company and it turns out we can’t get any HVAC that qualify for the tax credit. We live in a condo and a qualified heat pump would take up the whole balcony. Bah!

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Darwin January 1, 2011 at 10:40 pm

I had done an analysis last year to see if it was worth replacing our HVAC unit with a newer more efficient model. It turned out, for about 7K (inclusive of credits), we’d only be saving 15% or so on our bills and the payback period was over a decade! So we passed.

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curt May 18, 2011 at 12:17 am

the 08/09 tax credit was a carry over Bush tax credit that was in place befor obama took office http://www.energystar.gov/index.cfm?c=tax_credits.tx_legislation you should do your homework

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Darwin May 18, 2011 at 7:34 am

Umm, you should read the article.

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Larry G. Edwards January 3, 2011 at 1:24 pm

Enjoyed your article, I see windows qualify, along with other products, I was
understanding all Energy Star products qualified, I sell a lot of entry doors
and storm doors that are energy star rated and thought they were to qualify
maybe I was wrong, if they do can you advise me. Thank you
Larry G. Edwards

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Nyanna September 10, 2011 at 4:05 pm

I was so confused about what to buy, but this makes it unedrstandlbae.

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curt January 3, 2011 at 1:27 pm

as the owner of a home improvment company specializing in siding and window replacemnt i couldnt agree more. we saw in 09-10 a 20% increse in window replacement with a huge surge in late 2010 the new tax credit is a joke 200.00 will not make a diffrence to a homeowner concerding replacing windows, it is a wast of our tax dollars ethier make it big enought to make a diffrence or do away with it. the curent adminastration is a joke seems they dont undderstand bacic economics.

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Johnny May 17, 2011 at 8:50 pm

It’s the people like you who are a joke… Who do you think proposed and passed the 09-10 tax credit that you praise so much? Not the current administration by any chance??? And you know why it’s only $200 now? It’s because the freaks who are the majority in Congress now (10% rich whom the dumbest 40% keep in power) who blocked the extension and will block anything just because it comes from the Prez. Go back to installing windows now it’s apparently all you do understand.

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Darwin May 17, 2011 at 9:39 pm

So Johnny, you regard a $200 credit on a $10,000 purchase as a motivating factor enticing homeowners to agree to install new windows? That’s a 2% incentive. Not exactly stellar from an incentive standpoint.

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Johnny May 18, 2011 at 12:30 pm

No, it’s not a motivating factor and it’s useless. All I’m saying is the current administration was responsible for 09/10 and they couldn’t significantly extend it (like anything “green”) because of the majority of R-CONs in the Congress. I took advantage of $1.5K in two previous years – one part for the tankless water heater (totally worth it) and whatever was left for the heat pump and new furnace install (not so much.) Promoting tankless water heaters would have the greatest impact on our country. Solar panels (still 30% off) would be huge too but much more costly and location dependent. And I like these credits – they come off your own taxes – if you don’t work, you get nothing. I’m getting a new house soon and I will be stuck with old crap and the 18th century tech water tank again for a while – what a shame :-( However, I’m going to get some back for the LEAF in 2011, so let’s hope for a new round of credits in 2012 :-)

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Brad October 8, 2011 at 2:57 pm

Well Jonneee,

you hope for that new round of handouts, I think $200 is better than nothing and will be installing energy star rated windows in my house, not because of a handout, but because my house needs it and new windows will benefit my family in more ways than one. And by the way, the estimate was between 7k to 9k, for 9 windows, I can’t afford that anyway I approach it, so I decided to self educate and do the job myself one window at a time for a total cost of $1,800 in Southern, AZ. Your the joke, keeping looking for hand outs like a good dependent LIBERAL moron.

Carrie#K January 3, 2011 at 8:55 pm

I think they’re working off the idea that it’s the thought that counts.

What am I saying? thought? Gah.

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Joe January 5, 2011 at 10:06 am

I was going to go with an energy efficient central AC unit, but now that I saw your article, I’m just going to go for the lowest price. For me, there’s no point in investing more up front. I only plan to stay here a few more years.

Good article.

Thanks

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Jeremy Howen January 17, 2011 at 12:20 am

I feel as though I have just been handed some A.B.C. gum, and then expected to show my gratitude. Our home improvement company was just showing some vital signs again. Thanks for nothing.

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TJ January 30, 2011 at 3:37 pm

Yeah this new tax credit is to me not worth putting in windows now! I had someone to put in windows before the end of the year, but they screwed around and didn’t deliver so i lost out on the whole 2010 deal, which pissed me off. Then i heard just recently that it was extended, thinking it was at the same %, come to find out a disappointment again of it lower, so i guess no one is getting my money for windows, i’ll just stick to my old ones until they get there heads out of their asses and see what is happening now with the lower percent. When they go back up to 30 or even higher than i’ll consider it, just hoping that the people selling the windows don’t put a mark-up of 30% which i am sure happened anyways and people just don’t relize it.

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Dawn February 6, 2011 at 12:38 am

Very good point about the new deductions not really being “incentives.”

But if Uncle Sam wants to give me back some of my own money for something I was planning to do anyway, I’ll take it. ;)

I don’t think this is nearly as bad as Cash for Clunkers. Anyone who did the math realized they could get a better deal on a car that was a few years old than with buying a new car and taking the tax credit. THAT was just a stupid program.

People who truly need new windows who are putting it off though (like TJ, above) aren’t thinking about the long-term economics and cost-savings of more energy efficient windows.

With or without the government’s money, when we can finally upgrade our decades-old windows, the cost savings will easily pay for itself over a few seasons. When you do the math — and there are efficiency calculators out on the Web — you may see it pays whether you’re planning to stay in your home or not.

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Steve September 27, 2011 at 9:53 pm

Cash for Clunkers. Not quite true. You miss the the facts that:
a. old cars can be quite expensive to maintain
b. extra gas for guzzlers adds up very quickly
c. resell price is still better
I am not sure if this makes it a great deal, but I am sure it will not be that bad.

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Jerry February 6, 2011 at 12:51 pm

Late last year my wife and I began considering the replacement of our two heat pumps. They’re beginning to fail. We were looking at purchasing higher efficiency units to comply with the 2010 tax incentive. Unfortunately we didn’t realize the tax incentive was set to expire so we lost out. Now we have to go back to the drawing board and purchase less expensive units with are not as energy efficient. The difference in the final price is $3000 from Dec 2010 to Jan 2011.

With America’s current and projected long term energy problems, the 2011 tax incentive doesn’t make much sense. Why would they essentially eliminate incentives to increase the nation’s long term energy dependence and stifle business at the same time?

The writer’s point is spot on, creating a tax incentive which is too small, essentially just throws money away. It’s no longer an incentive and just puts $200 in the pockets of people who are going to buy a furnace anyway, not to mention increasing nation’s energy dependence.

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Bob March 11, 2011 at 1:27 am

As a contractor installing heating and ac equipment, I want to say that the government should keep their nose out of just about everything, including tax credits for spending – including on heating and ac systems.

They give with one hand and take with the other. Many people wanted the tax credit in our area for 16 SEER systems, but when they saw the cost of a 16 SEER system did not want it. The government wasted everyone’s time by 1. giving a credit for something people did not need, 2. incetivising people to ask us for what they did not need, and 3. forcing us to quote people on what they did not need and did not buy. With respect to 95% efficient furnaces, we did see several orders at the end of the year (meaning December). Some of the people who bought furnaces also bought less efficient, 13 SEER, air conditioners which we were then subjected to installing in December outside with the cold and snow starting to fall. If the governmet stayed out of things, everyone would be better off. The amount of time we spend chasing our tails because the government throws a bone is stupid. And the bureaucrats creating programs and mandates and who are at war with the energy industry should all be fired. When taxpayers finally get it and throw all of these socialists out, we will have prosperity again. Make these idiots work for us, not us for them. For 2011 they virtually threw out the entire credit, changing the program, so that people trying to make a living in the industry can learn something else new that no one really should want or need at the cost of the opportunity to really learn how to actually better serve customers.

The rich in 2010 got nice new systems, the poor who finally saved and could maybe buy something now in 2011 get nothing. For geothermal systems, people who invested early before the tax credit got nothing, but now people get 30% with no cap. What happened to the idea of free and fair economy?

Cash for clunkers took the only cars the poor could afford off the road and destroyed them so that the rich could get a tax credit on the backs of the poor and a new car.

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D. Edwards March 19, 2011 at 5:41 pm

I believe your article may be a little misleading. The way I understood the 2011 tax credit was if you used a 2010 energy credit and it was a certain amount (less than $500?) you could still use the 2011 credit (subject to certain limitations; i.e. windows maxed out at $200 credit) up to an additional $500 or 10% for a qualifying amount. Conversely, if you got a $1000 tax credit on your 2010 Form 1040 then you get nothing in 2011.

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Lorie April 3, 2011 at 8:59 am

My husband and I are buying a house built in 1970. One window absolutely has to be replaced because it’s a bay window that was used to support huge heavy planters, now it’s basically falling out of the wall. So with that one window we have little choice but to replace it. The home inspector said though that replacing all the windows would be a waste, because with that miniscule tax credit, our money would be better spent re-insulating the attic of the home, and buying a pellet stove to replace the thirty year old woodstove. He strongly advised against replacement of all the windows because the money saved on energy costs per year would be minimal. For the french doors in the kitchen and dining room, he suggested comprehensive weather stripping. We would have spent about $10K on all new windows, even more to replace the two sets of french doors with sliders. That’s a lot of money not spent for window/door replacement, but with a miniscule $300 tax credit, it’s just not worth it.

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Zach @Energy-Grants July 19, 2011 at 12:21 pm

Well said. People need a real incentive to invest in energy-savings changes and $200 bucks (in the face of thousands) isn’t going to change anything… especially during a recession where people are counting pennies. There are lots of other incentives on the local level that people miss (offered by your local utility company, etc.) because they aren’t well advertised. If you’re going to buy a new water heater anyway, just take a few minutes to see if you can get some money back.

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Nishant July 29, 2011 at 8:56 am

I think this great article. Only one thing I disagree is that Cash for Clunker related, where you said that it also went I drain, but let me tell one thing that, that was one of the most successful program Obama government implemented, which saved not only lot of job loss for Auto and supporting industries. When that program came out our economy was not selfsustained and there in no way people would have bought that many cars, which they bought in that short period of time, which kick started whole auto industries. I would say that tax credit for homebuying and energy credit was also great, but negative news factors works on that more than possitive news. Unfortunate for our country. Thanks!

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Bstone August 9, 2011 at 1:54 pm

This tax credit is not an incentive. Agreed. The 2010 tax credit was better. Agreed. The R-Cons shut down everything that is green by this administration. Consider this. If the true purpose of teh energy tax credits was a green iniciative then they would have also been available to the owners of multi-family or rental properties. I have rentals and considered improvements that would have qualified for the tax credits. I did not qualify so the improvements did not get done. I am upside down on part of my properties just like other home owners, but due to them being rentals I can not: A. refinance at all (upside down not qualified)
B. Use any credits for insulation, windows, ac or furnace, solar, fuel cell or any other advanced green technology.
My choices are to suck it up and make the best of what I have or sell at a loss that I could deduct over time from any other income I have.

I made the choice to add insulation to one property, will do the same for another later this year when it cools off and I can stand the heat in the attic. I can not increase my rent on these properties because people who rent would rather pay fresh cheap paint on the walls then energy improvements that would save them money. I am a conservitive who does believe in conservation. Conservation of natural resources, national wealth and talent. I support domestic natural gas production with enough inspectors that are paid well enough to police the gas fields. I support tapping off shore reserves not necessarly by drilling rigs in the water but on shore and drilling at a angle. I support spending on project that truely create jobs and improve infrustructure. I am against over regulation of industry because a goverment encourged policy of loaning money to those who could not afford it blew up and wrecked housing prices. I am against propping up housing prices with repeated incentives to buy distressed properties until the true accounting of distressed properties is made. Let the housing chips fall where they may, assess the damage then if a plan is needed to assist in people who can now afford the homes at the new value then clear up the market. And just so it is clear I own property in both Fl and Ga two of the hardest hit areas on home value.

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John Rossi September 17, 2011 at 3:10 pm

Although the residential energy credit has been vastly reduced, there is another program that may be helpful. That program is called Home Performance with Energy Star. It is administered under the American Recovery and Reinvestment Act by various states. To qualify a homeowner must agree to a home energy audit (usually free) and then have suggested upgrades installed. It is not based on income but rather on the amount of increased energy efficiency that can be achieved. The rebates are substantial, sometimes amounting to about 50% of the costs of materials AND installation. What I do not know, and cannot seem to find out is whether the reimbursements to the homeowner are non-taxable rebates or taxable government grants. I have done many hours of research on this issue and have contacted the IRS and the DOE but believe it or not all I get from them is “contact your tax advisor”. Since the program is not widely known all any tax advisor will do is contact the IRS, thus setting up a circle of confusion. The concern is not inconsequential since the amount of the rebate could be up to $8,000. Thus, poor and moderate income families might find themselves subject to a relatively large percentage of back taxes and interest and penalties for under-withholding. Does anyone know of a way to get a definitive answer?

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Johnny October 8, 2011 at 9:50 pm

Brad, like a proper tea bagger, can’t really write in English but he educated himself on how to install windows – good for him – we’ll need some half monkeys with rudimentary tool skills once the Republikkkans kick all the illegals out.

What he doesn’t understand is that the “handout” doesn’t apply to him , so he had to do the job himself. One can only write off what one’s tax liablity is and since the unemployment just ran out for Brad the only handout he’s getting is the food stamps which actually comes out of my pocket, so I hope you die starving.

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Ron @ Besttravelcreditcard.us November 3, 2011 at 5:20 pm

Well maybe the current social protests in the US will help to change stuff and make the government a tad more productive [thus offering real productive economic stimulus]. It may be a far off wish, but none the less it is possible……

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Joe May 14, 2012 at 4:05 pm

Very true. My wife and I just put in a new A/C system in our house. We were told the tax credit was only worth $300. That’s a far cry from the $1,500 it use to be.

You’d think in an economy such as ours, the government would be bending over backwards to extend tax credits and encourage people to spend more money to help improve the economy.

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bramantya June 6, 2013 at 9:29 am

You’d think in an economy such as ours, the government would be bending over backwards to extend tax credits and encourage people to spend more money to help improve the economy.

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