The American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law on February 16, 2009 by U.S. President Barack Obama, opening the door for heating, air conditioning and indoor air quality customers to receive expanded tax credits. The tax credits apply to the installed costs of qualifying high-efficiency products and home efficiency improvements.

The tax credit is equal to 30% of the installed cost of qualifying heating and cooling improvements, up to a cumulative amount of $1,500 during the two year incentive term. The credit's term is retroactive to the beginning of the year 2009, from January 1, 2009 to the expiration date of December 31, 2010. All previous 'caps' on the credits have been removed. Consumers who previously claimed the same tax credits in prior years may also claim the 30% tax credit (up to $1,500) included in the Act.

What improvements qualify:

Qualifying improvements include energy-saving heating & cooling equipment, indoor air quality components, boilers, water heaters, windows, doors, skylights, roofing, insulation and solar devices. The full $1,500 tax credit can be applied to a single purchase or a combination of appliances or energy improvements.

1.  What can I do take advantage of the new energy tax incentives?
---- Homeowners can receive a substantial tax credit for home efficiency improvements on new high efficient air conditioners, heat pumps, furnaces, boilers and water heaters. Additionally, new high efficiency windows and additional home insulation qualify.

2.  Can the homeowner claim $1,500 in tax credits for improvements made in 2009 and again for improvements made in 2010?
---- No.  Taxpayers may only be eligible for a total of $1,500 in tax credits for improvements made in the combined two year period of 2009 and 2010.

3.  Can a homeowner use the entire $1500 in tax credits for installing a single appliance?
----Yes.  A homeowner may use the entire 1500 in tax credits for installing a single appliance, such as a qualified furnace, air conditioner, heat pump, or hot water heater.

4.  What happens if the 30% of the installed costs is less than 1500?
---- The homeowner can "bank" the remaining available tax credit for other qualified improvements.  Any single installation that costs more than $5000 will instantly reach the $1500 limit.

5.  Does the tax credit apply to the cost of the equipment or equipment plus labor?
---- The tax credit applies to the installed costs of the qualified equipment, which includes labor.

6.  How will a taxpayer claim the credit and receive their money?
---- The IRS has directed taxpayers to use Form 5695 to claim the credit. Taxpayers are also instructed to keep complete records of their installation and home improvements.  Taxpayers are not required to file anything more than the form, but are instructed to keep records of their installation.

7.  What's the difference between a tax credit and a tax deduction?
--- As a tax credit applies against the taxpayers' liability.  A tax deduction applies against a taxpayer's income, lowering the adjusted gross income and possibly moving the taxpayer to a lower tax bracket.  Tax credits have a greater benefit to a taxpayer.  With a tax credit, if the taxpayer owes $2000 in taxes, their liability is reduced to $500.  If they owe nothing, they can expect a $1500 refund.