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John F. Wasik

If you’re renovating, think green: Tax credits can put money in your pocket

By John F. Wasik
Bloomberg News / October 6, 2009

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Can you profit being an eco-investor?

There are really only two ways of doing it: Buy a risky sector fund or stock and hold on to it for dear life over the next few years. Or invest in your home.

I prefer a home investment. The incentives have never been better, and there’s no market risk. All the green funds got creamed last year.

Yet it’s unlikely your broker will tell you about the tax breaks available, or mention that eco-improvements will lower your cost of living.

If you do this right, not only will you be cutting your energy costs and greenhouse gases, but you can realize immediate savings. Solar panels, for example, will save you money every year and have a steady rate of return that’s almost guaranteed, depending on the state incentives.

As part of the US stimulus plan, there are a raft of generous tax breaks for everything from replacing doors to installing geothermal heating systems. You have until the end of next year to put in service a number of improvements to qualify for the federal tax credits. Fixing up your home has never made so much economic sense.

The Treasury will give you a tax credit of 30 percent of the cost (a maximum of $1,500) for energy-efficient windows, doors, insulation, conventional heating/cooling systems, water heaters, and biomass stoves. See www.energystar.gov/taxcredits for specifics. If you rent or own a condo, apartment, or co-op, you can save on energy costs by buying Energy Star appliances. Even better credits are available on geothermal heat pumps, solar panels/heaters, small wind-energy systems, and fuel cells. There’s no limit on the 30 percent write-off for these items through 2016.

So if you purchase a $20,000 solar-electric system, you can get federal credit for $6,000 that will knock the price down to $14,000. And that’s before state tax breaks apply.

When doing the numbers on your home-improvement project, you will need to see what your state is offering you to go green and make a few assumptions. Let’s say you want to install a 5,000-kilowatt solar electric system on a full-sun, south-facing roof in New Jersey, which has a generous alternative energy program. The retail price is $38,000, but after a state rebate of $8,750 and $8,775 federal credit, your net price is $20,475.

Since the state will compensate you for the solar power you generate, you will receive renewable energy credits once you produce at least 1,000 kilowatt hours of electricity. According to a payback analysis at www.thesolarcenter.com, you will get $2,750 in annual state energy credits while paring about $1,000 in electricity costs for a saving of $3,845. If power rates drop, the payback will be less generous.

Another consideration is the cost of solar equipment, which is dropping; that may shorten your payback time.

John F. Wasik is a Bloomberg News columnist.