What is an Insulation Tax Credit?

Jim B.

In the United States, an insulation tax credit is a tax benefit to homeowners who add additional insulation to their homes as a way to improve energy efficiency. The most recent US tax laws as of 2011 allow for homeowners to deduct up to 30 percent of insulation costs, with a maximum amount of $1,500 US Dollars (USD) from their yearly taxes. Insulation added must meet certain industry specifications depending on the area of the country in which a person lives. For the insulation tax credit to be applied, homeowners should provide a receipt for the insulation purchased as well as a manufacturer's certification document with their income tax returns.

A roll of mineral wool insulation.
A roll of mineral wool insulation.

Many of the recent economic initiatives around the world are based on the efforts to increase energy efficiency, thus cutting down on the need for countries to pay large amounts to foreign energy sources. The United States has instituted many such initiatives, including the passing of a 2005 law that allows for homeowners to be rewarded for such energy-saving efforts. This law, which was beefed up to higher levels in 2009, allows for homeowners to benefit from an insulation tax credit.

The most recent insulation tax credit levels as of 2011 allowed by the US Internal Revenue Service are 30 percent of insulation improvements up to a one-year total of $1,500 USD. For example, if a homeowner added $2,000 USD worth of insulation to his home, he could deduct 30 percent of that amount, or $600 USD, from his tax return that year. This essentially rewards the homeowner for improving energy efficiency, which should also save him money in the future.

It is important to note that the insulation tax credit does not include any work performed by contractors hired by the homeowner to install the insulation. Since this is the case, homeowners should receive an itemized list from the contractor that specifies the exact cost of the insulation itself separate from any installation costs. These costs must be provided on a tax return as well as a manufacturer's certification document that validates the insulation to authorize the credit.

Homeowners should consult with tax professionals to know exactly what type of insulation must be installed to qualify for the insulation tax credit. Insulation levels are measured by an industry standard known as R-value. Different sections of the country require different R-values depending on the parts of the home being insulated. It is also important to know that the credit applies only to insulation installed in the building envelope, which is defined as the part of the home separating the space where people live from the space outside the home.

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