Sometimes it may seem like it is impossible to find money at the end of the month to put towards your retirement account. This is why it is critical to making the most of every dollar! Insulating your home is one of the most effective ways to decrease your energy bill by going green. Another benefit is that many energy efficiency updates qualify for tax credits and utility company rebates!
You can double or even triple up on your savings! Consequently, you can put all of these savings towards your tax-advantaged retirement account!
How Much Can You Save by Properly Insulating Your Home?
In short, by adding insulation to your home you can reduce heating and cooling costs anywhere from 10% to 50%.
Of course, the amount you save depends on where you live and how much insulation you already have.
For instance, a homeowner in the Northeast with an uninsulated attic can save around $600 a year by adding about 15 inches of insulation (R-38- ill go over R-values later in this article).
In fact, just 6 inches can net annual savings of around $200.
According to the Lawrence Berkeley National Laboratory, by simply reducing your home’s air leakage by 25%, you can lower your annual energy costs by around $300.
The money you save can be put toward any number of uses, but since Eco Economics is about sustainability and increasing your financial IQ…
I would say that the highest and best use of this money is to devoted it to a tax-advantaged account that helps you achieve financial freedom!
Depending on the type of materials you use, you will pay an average of $1,500 to insulate an 800-square-foot attic. If you do this, you can expect to have a payback period on your investment in three years.
You’ll spend about half that if you do the job yourself!
So if you are nifty and have a spare weekend, add it to your list of DIY projects and save a cool $800. This also means that your payback period is also cut in half!
Visit the Sustainability Shop and under the tab called Energy Efficient Home you will find many insulation products to start saving money today!
The Nonbusiness Energy Property Tax Credit:
As of the 2018 tax year, the federal government offers the Nonbusiness Energy Property Tax Credit. These credits are good through 2019 and then are reduced each year through the end of 2021.
This means that if you are interested in taking advantage of the biggest federal renewable energy tax credit, you will need to take action within the next year!
The Nonbusiness Energy Property Tax Credit allows you to deduct 30% of the cost of installing a solar energy system from your federal taxes. On the same tax form, there is an area that allows you to deduct a portion of the cost to increase the insulation in your home.
The link to the tax form is included in a later portion of this article for your convenience.
If you are interested in learning how you can DIY your own solar panel system, visit Renewable Energy Tax Credit: How to Install DIY Solar Panels. You can build your own solar energy system for 60%-70% cheaper than if you were to get one installed!
The credit is equal to 30% of the cost, including installation. Moreover, there is no upper limit on the amount of the credit for solar, wind, and geothermal equipment.
The Increase Your Financial IQ Course will be released soon and will cover how to write-off solar energy improvements to your investment properties.
You can sign up for the Free Increase Your Financial IQ Mini-Email Course to get notified when the full-blown Increase Your Financial IQ Course becomes available. The mini-email course is designed to show you how easily you can save for retirement, and how to use a tax-advantaged account to reach over $1,000,000 in savings.
To find utility company rebates offered in your zip code read, “Renewable Energy Tax Credits, Incentives, and Rebates“.
Equipment that Qualifies for the Residential Renewable Energy Tax Credit:
The credit includes costs to install solar, wind, geothermal and fuel-cell technology updates to your home.
- Solar panels for generating electricity
- Solar-powered water heaters. The water heated by the system must be used inside the home, and at least half of the home’s water-heating capacity must be solar. (Solar heaters for swimming pools and hot tubs do not qualify.)
- Wind turbines that generate up to 100 kilowatts of electricity that must also be used in the home.
- Geothermal heat pumps that meet federal Energy Star guidelines.
- Fuel cells that rely on a renewable resource (usually hydrogen) to generate power for a home. The equipment must generate at least 0.5 kilowatts of power.
For the average person, the solar panel and wind turbine options are going to be the easiest to install, with the fewest regulations to get past.
Nonbusiness Energy Property Tax Credit:
Equipment and materials must meet technical efficiency standards that have been set by the Department of Energy.
Manufacturers typically advertise that their item meets this standard. In short, if a product does not advertise that it meets the standard, be sure to ask prior to purchasing.
Turbo tax does a great job explaining the two kinds of energy efficiency improvements that you can write off. I have listed them here for your convenience…
For this credit, the IRS distinguishes between two kinds of upgrades:
1. Qualified Energy Efficiency Improvements:
- Exterior windows and skylights
- Home insulation (Just about all types: fiberglass, cellulose, mineral wool, spray foam, foam board, and cotton batting qualify for the energy tax credit)
- Exterior doors
- Certain roofing materials
2. Residential Energy Property Costs:
- Electric heat pumps
- Electric heat pump water heaters
- Central air conditioning systems
- Natural gas, propane or oil water heaters
- Stoves that use biomass fuel
- Natural gas, propane or oil furnaces
- Natural gas, propane or oil hot water boilers
- Advanced circulating fans for natural gas, propane or oil furnaces
There are a few credit restrictions, like a maximum of a $200 credit for windows. For a full list be sure to consult your tax accountant. You can review Turbo Tax’s exceptions list here.
Remember it is critically important to save your receipts and labels for Uncle Sam.
Which Tax Form to Use:
The form to use to claim your solar or wind credit is called The Residential Energy Credit Form 5695, which is filed with your tax return.
On this same form, you can add any write-offs you have made to insulate your home.
For insulation updates, you can write off 10% of expenditures, up to $500 for the year. This amount is for all energy improvements combined.
The R-value measures the home’s resistance to air flow, which means less heated or cooled air escapes. The higher the number value, the better the insulating power.
The Department of Energy (DOE) recommends an R-value between 30 to 60, depending on where you live.
According to the EnergyStar website, the recommended level for most attics is to insulate to R-38 or about 10 to 14 inches, depending on insulation type.
I have inserted a photo of a map of the US and a chart with the recommended values provided by the DOE.
Eco Economics will be Offering Two kinds of Courses:
- The Sustainability Course: How to live a sustainable lifestyle and save money by going green.
- The Increase your Financial IQ Course: How to achieve financial freedom by using tax-advantaged accounts, understanding proper financial planning, and wealth creation through real estate.
The two courses are designed to be taken together so that one shows you how to save money, while the other shows you how to reinvest that money to help you achieve financial freedom.
A Few of the Topics That are Covered Are:
- Money-saving green swaps and actions that you can take to save our planet
- How to maximize the energy efficiency of your home (reduce your utility bills)
- Find the right renewable energy solution to give you energy independence (reduce or eliminate the impact of utility rate increases).
- How to reduce your carbon output
- How to start your own carbon sequestering organic garden
- Much more!
Articles that may interest you:
- Renewable Energy Tax Credits, Incentives, and Rebates
- 8 ways to Reduce Global Warming by Increasing Energy Efficiency
- 5 Ways to Save Money by Going Green
- How to Save for a Down Payment on a Home and Fund a Roth IRA
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By sharing we can help others save money by going green, all the while saving the planet together! Remember, it is our own lives and futures at stake.