Are you thinking about installing insulation in your home to cut down on energy usage? If you have already purchased new insulation and installed it, the good news is that you may be able to receive up to $2500 in federal tax credits on your 2010 tax return. The bad news is that, if you haven't already put new insulation into service, it is too late to take advantage of the full value of the 2010 federal tax credits because they expired December 31, 2010, and were replaced by a maximum credit of $500.

The 2010 Insulation Tax Credit

So, if you took advantage of the 2010 program, what can you claim on your 2010 taxes? An insulation material or system (including any vapor retarder or seal to limit infiltration) that is specifically designed to reduce heat loss or gain and may be taken into account in determining whether the building thermal envelope meets International Energy Conservation Code (IECC) requirements*. For insulation to qualify, its primary purpose must be to insulate (in other words, insulated siding does not qualify). Most conventional insulation materials such as rolls, batts, blow-in fibers, rigid boards, pour-in-place, and expanding spray siding are covered. The material should be expected to last 5 years or have a 2-year warranty.

Other products that are designed to reduce air leaks may also qualify, as long as they come with a Manufacturers Certification Statement. These may include weatherstripping, spray-foam air seal, caulking designed to air seal, and house wrap.

The amount of federal tax credit in 2010 was 30% of the material cost, up to $1,500. Installation costs are not included.

Notes: The material must have been placed into service between January 1, 2009, and December 31, 2010, in your principal residence. A Manufacturer’s Certification (a statement from the manufacturer certifying that the product qualifies for the tax credit), which is often available from the manufacturer’s Web site, should be kept in your records along with your receipt. When filing your federal taxes, submit IRS Tax Form 5695. For more information, please see the FREE HomeTips Home Insulation Buying Guide.

The 2011 Insulation Tax Credit

Although the qualifying materials and methods of documenting the credit have remained the same, the tax credit has been reduced to 10% of the cost of insulation (installation is not covered) up to $500 maximum. The insulation material must be placed into service in an existing house (not new construction) that is a principle residence by December 31, 2011. You cannot claim this credit if you have already received more than $500 in credits from 2005 to 2010.