Save Energy (And Money, Too)
Kiplinger's Personal Finance|April 2021
Tax breaks and the prospect of lower utility bills make these projects worth a look.
By Lisa Gerstner

A big slice of the cost of owning a home is what you spend on energy. Average annual energy spending in the U.S. adds up to $1,472 for electricity, $416 for natural gas and $113 for fuel oil and other fuels, according to the U.S. Bureau of Labor Statistics Consumer Expenditure Survey. (Your own expenses will vary depending on utility costs in your area, the size of your home and how heavily you use energy.)

The federal government encourages energy­-efficient home improvements by offering tax credits for certain upgrades. For existing primary residences, putting in energy­=efficient windows and doors, furnaces, air conditioners, insulation, water heaters, roofs and some other items qualifies you to take a tax credit of either 10% of the cost or specific amounts ranging from $50 to $300, depending on the improvement. The credit is currently set to expire at the end of 2021, and a lifetime cap of $500 applies to the total value of credits you can get in all tax years after 2005. (A credit is a dollar­-for­-dollar reduction of your tax bill.)

You can snag a more lucrative tax credit for certain renewable­ energy systems— including solar panels, small wind turbines and geothermal heat pumps—on new and existing residences, including second homes. Congress recently extended the tax break; now you can get a 26% credit for projects placed in service by the end of 2022, or 22% for projects placed in service in 2023.

Check for state and local incentives and rebates, too. Massachusetts homeowners, for example, can take a tax credit of $1,000 or 15% of the cost (whichever is smaller) for installing solar or wind­energy systems. Some utility companies offer rebates for buying energy­efficient appliances and equipment or making other improvements. To see incentives available in your area, enter your zip code at www.dsireusa.org and www.energystar.gov/ rebate­finder.

With Earth Day around the corner, now is a good time to take a look at how you can make your home more energy­-efficient. We’ve listed several upgrades that qualify for a federal tax credit and can pay off over time in energy savings (as well as a few that don’t come with a tax break from Uncle Sam but still trim your energy bills; see the box on page 71). Cost estimates and tax credit amounts include installation unless otherwise noted.

Before you get started, consider investing a few hundred dollars in a home energy audit, performed by a pro who will identify problem areas in your house and suggest fixes. With a blower door test, for example, a powerful fan set in an exterior door frame lowers air pressure inside the house, causing higher­pressure air outside to stream in through the house’s openings so the auditor can spot leaks. Auditors may also use infrared cameras, thermometers and furnace­efficiency meters to detect areas that need improvement. You can find a certified auditor in your area through the Residential Energy Services Network at www.hersindex .com. Your utility company may offer energy assessments or rebates for having one performed.

INSULATION AND AIR SEALING

Cost: From a few hundred dollars for basic, do­it­yourself weather stripping and caulking to a few thousand dollars or more to upgrade insulation in your home.

Savings: An average 15% on heating and cooling costs— or an average 11% on total energy costs—for those who air seal their houses and add insulation in attics and crawl spaces or basements, according to the Environmental Protection Agency.

Tax credit: 10% of the cost of bulk insulation and airsealing materials (installation costs are not eligible).

Ensuring that the inside of your home is protected from exterior cold air in the winter and warm air in the summer is one of the most cost­effective ways to save energy. That’s especially true in colder climates, although homes everywhere benefit from better insulation. “The more a house exchanges air with the outdoors, the less efficient it is,” says John Hensley, quality assurance director for consulting and inspection com­pany Building Performance Solutions. Sealing and insulating your home may even allow you to invest in a smaller heating and air conditioning system when you upgrade it.

Adding weather stripping and caulk around window and door trims that are leaking air is a relatively easy and low­cost place to start. When it comes to larger sealing and insulation projects—for which you’ll likely want help from a contractor—focusing on the attic, which tends to have greater exposure to heat, cold and moisture than other parts of the house, often makes sense. Basements and crawl spaces are prime places to beef up insulation, too. And when you replace your roof and siding, you may want to add insulation over the roof sheathing or to your walls, says Jennifer Amann, buildings program director of the American Council for an Energy­Efficient Economy.

HEATING AND AIR CONDITIONING

Cost: About $5,000 to $12,000 to upgrade both heating and cooling systems, depending on the size and efficiency of the units.

Savings: Replacing a heat pump or air conditioner that is more than 10 years old with a high-efficiency unit can save up to 20% on heating and cooling costs, according to Energy Star. Certified gas furnaces are up to 15% more energy-efficient than standard models and can save up to $85 a year in energy costs.

Tax credit: Up to $300 for qualifying central air conditioners and air-source heat pumps; up to $150 for qualifying gas, oil or propane furnaces and boilers.

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