What is a Home Improvement Tax Credit?

A home improvement tax credit is a deduction that American taxpayers were allowed to take from federal tax returns. The home improvement tax credit had specific requirements, which were set by the Internal Revenue Service (IRS). Generally, the tax credits are for making home improvements to make it more efficient and environmentally friendly. A home improvement tax credit reduces a tax payer's income, which in turn reduces their tax obligation.

Since the home improvement tax credit was part of American Recovery and Reinvestment Act (ARRA) of 2009, it gave consumers and even businesses an incentive to reduce the amount of energy used. The incentive was to reduce the consumer or business tax obligation. The tax credit was set in 2009 and had a year-long deadline or when the money set aside as part of the act ran out.

In addition to the federal home improvement credits, some states offered similar incentives to residents. State incentives included tax credits on state income tax returns. Some also extended the incentives for both a federal tax credit and a state tax credit.

Making a home more energy efficient is one way federal taxpayers were able to take advantage of the tax credit. Improving energy efficiency could be as simple as replacing old appliances with Energy Star® rated appliances, which use less electricity and water. In 2009, homeowners were able to take up to a $1,500 US Dollars (USD) home improvement tax credit on their federal income tax returns.

Other ways to add energy efficient improvements to the home that qualify for the tax credit include installing energy efficient windows. Installing energy efficient heating and cooling system in the home also qualified for a home improvement tax credit, as well as the installation of alternative energy sources.

Alternative energy sources include solar panels for heating and cooling the home. Solar or wind energy equipment as an electricity source is another home improvement option that qualified for a tax credit. From energy efficient appliances, hot water heaters to renewable energy sources, all of these home improvements were rewarded when it came time to file federal tax returns.

As of 2010 and 2011, a home improvement tax credit does not exist. While there is not a home improvement tax credit or incentive that exists currently, this does not mean that the federal government or even local and state governments will not provide incentives in the future.