Stimulus package's tax credits reward home energy efficiency

— -- You know you live in a drafty house when your scented candles won't stop flickering, your natural gas bill is higher than your mortgage payment, and your sheepdog starts wearing a sweater.

You could raise your comfort level and lower your energy bills significantly by installing insulation, replacing leaky windows and doors, and replacing old furnaces and air conditioners with energy-efficient models.

But those projects cost money, and there's precious little of that around these days.

Still, if you can come up with the cash, you may be able to recoup some of your costs when you file your 2009 taxes. The economic stimulus package signed into law in February revived and expanded tax credits for energy-efficient home improvements that expired in 2007.

The bad news is that homeowners who installed new windows or insulation in 2008 are out of luck, at least as far as federal tax credits are concerned, says Matt Golden, president of Sustainable Spaces, a home retrofitting company based in San Francisco. The new tax credits don't apply to home improvements made last year.

Here's a look at what's available:

•A tax credit for 30% of the cost of energy-efficient doors and windows, insulation, air conditioners, furnaces, heat pumps and boilers, up to a lifetime cap of $1,500. This credit is available for 2009 and 2010.

That means if you spend $5,000 on new windows this year and claim a $1,500 tax credit on your 2009 tax return, you won't be able to claim an additional credit in 2010.

This is a more generous credit than the one that was available in 2006 and 2007, which covered 10% of the costs, up to a lifetime cap of $500, says Robin Christian, senior tax analyst for Thomson Reuters. The old credits also contained individual caps, such as a $200 limit on new windows. With the new credits, you can claim 30% of all your energy-efficient costs, up to the lifetime cap, she says.

For windows, doors, insulation and other similar projects that tighten up the "shell" of your home, the credit is limited to the cost of materials, Golden says.