Is There a Deduction for Insulation?

The federal government is apt to give you a huge tax break for a possible do-it-yourself project such as adding home insulation. Rather than a tax deduction, the government offers a more powerful incentive: a tax credit. Before you go out and buy any old insulation, check that the insulation meets the requirements for the insulation tax credit.

The Internal Revenue Service offers a tax credit that lowers your tax bill by the actual amount of the deduction: 10 percent up to $500 on the purchase of qualifying insulation, according to Energy Star. Several types of insulating materials can qualify for an insulation tax credit, such as batts, rolls, blow-in fibers, rigid boards and expanding spray. You can even buy air sealant, such as weather stripping, if it comes with the Manufacturers Certification Statement.

The value of the insulation tax credit does not include installation costs. However, you can install insulation yourself and claim this credit. There is no tax incentive for the market value of the labor hours you use to install insulation. Other home energy efficiency products may allow you to include installation expenses in the cost of the unit.

Congress changes the insulation tax credit from year to year -- the insulation tax credit was worth up to $1,500 in 2010 -- and you can only claim the insulation credit for the year in which you install the insulation, not when you purchase it. If you installed the insulation on January 30, 2011, for example, you would claim it on your 2011 tax return by April 15, 2012 on Form 5695 on line 52.

State governments often offer home energy efficiency tax incentives parallel to those offered by the federal government. The Database of Incentives for Renewables & Efficiency lists current tax incentives for insulation in all states. Also, keep your receipts from your insulation purchase and the Manufacturers Certification Statement, because the IRS requires this should it audit your return.