Making Home Upgrades? Go Green and Save your Receipts.

It’s officially less than 6 months in the countdown to income tax season and hopefully you are on the up-and-up on the new tax credits available this year to homeowners. Last February Congress included a federal tax credit in the stimulus package that pays back homeowners up to 30 percent of the cost of all sorts of energy saving system upgrades in their homes. (A tax credit comes of your tax bill dollar for dollar, as opposed to a deduction which comes off your taxable income.)

We all know the benefits of energy saving systems on our utility bills. But now you can save on your income taxes just by installing them. So, if you’re in the market for a new hot water heater, insulation in the attic or updated plumbing fixtures- you might just save more money by going green than you originally planned.

Two of the most expensive parts of every utility bill include heating/cooling and water heating. Here are some possible savings opportunities keeping in mind the average energy savings and the tax credit:

Insulation and Sealing: According to Energy Star, you can save up to 20% off your heating and cooling expenses by properly insulating and sealing your home. In the example of a homeowner who pays $1200/year on energy, this is an extra $120 in your pocket each year. While expenses will vary by home, if you spend, let’s say, $1,000 on energy saving insulation, you will also get a $300 tax credit. All in all, you could pay off the cost of the insulation in 2 years. From then on, your savings will only continue.

Water Heaters: Water heating typically costs the average homeowner about  $400-$600/year and is the second highest energy expenditure after home heating and cooling. However, new energy efficient water heating systems are saving homeowners up to 25%- 50% on their water heating bills each year depending on the technology. The concern is that some of these new models cost a great deal up front. However, with the 30% tax credit, you might be able to save enough to make it very worth your while. You could recoup the cost of your water heater in 3-5 years and then continue to save 25%-50% on your water heating bills each month.

Obviously, your savings will increase based on your need for these upgrades. If you live alone, your water heating expenditure might not be enough to constitute an upgrade. On the other end of the spectrum, if you have an old home that loses a great deal of heat in the winter due to lack of insulation, your savings on insulation could be double or triple what we mentioned above.

Also, get the low down on the requirements for the energy tax credit before making any upgrades. There are limits to the amount of the credit for the current year and the types of products that qualify.