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How to get an energy tax credit

As the weather turns chilly, homeowners are looking at improvements to help them keep their energy costs down - and the government can help with part of the bill.

Upgrade your insulation, windows, doors, roofing, heating and air-conditioning system or water heater, and you could qualify for a federal tax credit for 30 percent of the purchase price of the product - up to a $1,500 maximum credit.

How it works: The credits can be claimed on a homeowner's income taxes for 2009 or 2010, whatever year the improvements were purchased. With a credit, the amount comes off any taxes you owe.

The credit is nonrefundable, meaning it allows taxpayers to lower their tax liability to zero, but not below zero, according to the Internal Revenue Service. To qualify for the credit, you must place those purchases in service between Jan. 1, 2009, and Dec. 31, 2010.

"The $1,500 cap applies to the aggregate amount of credits claimed in both years combined," said Robin Christian, senior tax analyst at the tax and accounting business of Thomson Reuters. "Also, only improvements made to your principal residence qualify - vacation homes are not considered."

Bigger-ticket improvements: For typically more-costly improvements - including solar water heaters, solar panels, small wind-energy systems and geothermal heat pumps - the credit is for 30 percent of the purchase price, with no cap, according to the Energy Star Web site. Credits for these improvements are available through 2016, but you must claim them for the tax year in which you made the purchase.

What's not covered: One note: To qualify for the credits, all of the products must be used inside a home. That means equipment used to heat a pool or hot tub doesn't qualify, Christian says. Also, the federal tax credits don't always cover the cost of installation. The installation costs for heating and cooling systems and some other higher-cost improvements qualify, according to the Energy Star site. But installation of windows, insulation, doors and roofs doesn't.

New homes: The tax-credit rules are different if you are building a new home. In this instance, you can qualify for the credit for some upgrades, including geothermal heat pumps, solar panels, solar water heaters, small wind-energy systems and fuel cells. But you won't get a tax credit for the purchase of windows, doors, insulation, roofs, heating and air-conditioning systems, and nonsolar water heaters, according to the Energy Star site.

Paperwork: Make sure any products you purchase come with a Manufacturer Certification Statement, a signed statement from the manufacturer that says the product qualifies for the tax credit. You will need that and any receipts when you claim the credit on your taxes. Also make a copy of receipts since the print can wear off over time.

Learn more: Details on which products qualify can be found on the Environmental Protection Agency's Energy Star program Web site, energystar.gov/taxcredits. Some stores also post information. For instance, at Home Depot's Web site, homedepot.com/taxcredit, there's a link to a list of specific products that qualify.

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