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Consumers making substantial home renovations can receive a tidy tax credit from Uncle Sam if they shop and buy carefully. The American Recovery and Reinvestment Act of 2009 allows home owners to receive tax credits when they improve the energy-efficiency of their home.

Tax credits are different from tax deductions.  A tax credit is figured after you determine your tax bracket and how much you should owe in taxes.  A tax deduction reduces how much you owe in taxes by decreasing your taxable income.  The amount of a tax credit is the same for everyone, while tax deductions are not.

To receive the tax credits, homeowners should make sure their improvements adhere to the IRS guidelines:

 - Must be “placed in service” from Jan. 1, 2009 through Dec. 31, 2010.
 
 - Must be for taxpayer’s principal residence, except for geothermal heat pumps, solar water heaters, solar panels, and small wind energy systems (where second homes and rentals qualify).  $1,500 is the maximum total amount that can be claimed for all products placed in service in 2009 and 2010 for most home improvements, except for geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems, which are not subject to this cap, and are in effect through 2016.

 - Must have a “Manufacturer Certification Statement” to qualify.  For record keeping, save your receipts and the Manufacturer Certification Statement.  Improvements made in 2009 will be claimed on your 2009 taxes (filed by April 15, 2010) - use IRS Tax Form 5695 (2009 version) - it will be available late 2009 or early 2010.

Brought to you by Randy Charlton of Century 21 Home Realtors.