Since the 2005 tax year, there have been several tax deductions and tax credits for homeowners who make their home more energy efficient. Tax credits for energy efficient home improvements vary from one year to the next and not all home improvements qualify for the credits. Vinyl siding is not an eligible improvement for the energy tax credit, but it may qualify for the sales tax deduction instead.
Energy Efficient Tax Credits
Energy efficiency tax credits are credits that a homeowner can claim on his federal income tax return for home improvements he made that improved the energy efficiency of his home. Only specific types of home improvements qualify for this type of tax credit. A tax credit lowers your tax bill by the amount of the credit, so a $500 credit is $500 off of your taxes. A deduction lowers the taxable income you pay based on your tax bracket. So a $500 tax deduction for a woman in the 25 percent tax bracket only reduces her taxes by $125.
Home insulation materials for example, insulated windows and doors, and reflective roofing materials all work to specifically reduce the amount of heat or cooling loss in your home and improve the energy usage. Other eligible home improvements include installing solar panels or wind power generation, changing to solar or propane-powered water heaters and installing a whole house fan. Installing vinyl siding -- even Energy Star rated siding -- does not qualify for the energy efficiency tax credit.
Sales Tax Deductions
You can take tax deductions for the sales taxes you paid in your state during the tax year if you itemize your deductions on your federal income tax return. To claim a sales tax deduction, you must keep your sales tax receipts from the purchases you are claiming in the deduction. If your state charges sales tax for home improvement materials such as vinyl siding, save the receipts from that purchase and deduct the sales taxes on your income tax return.
Tax Incentives Change
Many tax credits, incentives and deductions change from one year to the next. The 2011 energy efficiency tax credit is only 10 percent of some improvements for example, while the 2010 credit was 30 percent. Check for updated credits and incentives before you file your taxes each year to see if new deductions and credits are available, and to ensure existing ones have not expired.
- Energy Star; 2011 Federal Tax Credits for Consumer Energy Efficiency
- U.S. Department of Energy; Consumer Energy Tax Incentives
- Fox Business; Take Advantage of the Sales Tax Deduction; Kay Bell; April 2011
- Internal Revenue Service. "Instructions for Form 5695, Residential Energy Credits," Page 1. Accessed Feb. 12, 2020.
- U.S. Congress. "H.R. 1892, Bipartisan Budget Act of 2018." Accessed Feb. 12, 2020.
- Internal Revenue Service. "Instructions for Form 5695, Residential Energy Credits," Pages 1-2. Accessed Feb. 12, 2020.
- Internal Revenue Service. "Energy Incentives for Individuals: Residential Property Updated Questions and Answers." Accessed Feb. 12, 2020.
Kathy Burns-Millyard has been a professional writer since 1997. Originally specializing in business, technology, environment and health topics, Burns now focuses on home, garden and hobby interest articles. Her garden work has appeared on GardenGuides.com and other publications. She enjoys practicing Permaculture in her home garden near Tucson, Ariz.