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Energy tax credits

Chris Farrell Jan 22, 2010

Question: I was told when I had 13 new energy efficient windows installed that I was eligible for a tax credit of 1500 dollars, even though the total price was only about 2300 dollars installed. My question is this a rebate that I will get 1500 dollars back to me from Uncle Sam or will I just get a credit of 1500 dollars towards any amount that I might owe to Uncle Sam? Love your program by the way! Tania, Dayton, OH

Answer: The tax credit is for up to $1,500. Technically, it’s called a “non-refundable” credit. That means you can’t get more money back in tax credits than your federal tax liability. Whether Uncle Sam ends up writing you a refund check or reducing your tax liability depends on your tax situation. The federal government’s website Energy Star offers information about the energy efficiency tax credits.

I’ve lifted these examples from the FAQ section that goes toward your question:

Say your Adjusted Gross Income (AGI) is $50,000, your tax liability is $10,000 (before you apply tax credits), and you’ve had $12,000 withheld from your paychecks. In this scenario you could claim up to $10,000 in tax credits. If you are eligible for the entire $1,500 tax credit, then your tax liability ($10,000) would be reduced to $8,500. Since you already had $12,000 withheld, you will get a tax refund of $3,500 ($12,000 – 8,5000 = $3,500).

If your AGI was $50,000, your tax liability $10,000 (before tax credits were applied), and you had $8,000 withheld from your pay checks, you would still have the ability to claim up to $10,000 in tax credits. If you are eligible for the entire $1,500 tax credit, your tax liability ($10,000) would be reduced to $8,500 and you would owe the government $500 at the end of the year ($8,000 already paid in taxes – $8,500 tax liability = $500 final payment).

Check it out.

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