Buying energy-efficient home energy systems, appliances, and cars can save you loads of money by reducing your energy consumption. But the upfront cost of investing in efficient technologies can make ditching your old energy guzzlers for new energy sippers seem prohibitive. Federal and state tax credits help defray your purchase costs. Here\’s how:

Federal Energy Efficiency Tax Credits

Home Renovations: You can earn up to 30% in federal tax credits on the first $1,500 you spend on improving the energy efficiency of your home. These credits apply only to existing home renovations and not to new construction. Remember: a tax credit is better than a deduction because it actually reduces the amount of money you pay tax on at the end of the year.

Qualifying products include energy-efficient:

  • windows and doors
  • insulation
  • roofs
  • central air conditioners, furnaces, and boilers
  • water heaters
  • biomass stoves (like those that burn wood, wood pellets, dried corn, etc.)

This credit expires at the end of 2010, so act sometime in the next eleven months to take advantage of this benefit.

Alternative Energy Substitutions: If you\’ve been thinking of transitioning to a renewable home energy system, you have until the end of 2016 to use tax credits to help defray the expense. These credits are also being offered at 30% of cost, but with no upper limit (in other words, if you spend $20,000 putting solar panels on your roof, the credits could generate as much as a $6,000 tax credit). Qualifying systems include:

  • geothermal heat pumps
  • solar panels
  • solar water heaters
  • small wind energy systems

The EnergyStar website offers more details on what systems qualify and which ones don\’t.

Federal Hybrid Vehicle Tax Credits

When I bought my hybrid Prius in 2002 for around $20,000, I received $4,000 in tax credits: $2,000 from the IRS, and $2,000 from my state government. Today, the rules for hybrid vechicle credits are a little more complicated. Hybrids purchased after December 31, 2005 are eligible for a credit up to $3,400, but that number declines once the car manufacturer sells over 60,000 units of a particular hybrid model. GM and Chrysler are still offering full credits; Ford is offering reduced credits until the end of March 2010. The credits are subject to change, so check back frequently.

State Credits
Many states have created their own financial incentives for going green. Check out DSIRE.org for a comprehensive list of what your state can offer you, including tax credits, rebate programs, and much more.

Diane MacEachern, the author of Big Green Purse: Use Your Spending Power to Create a Cleaner, Greener World, is passionate about empowering women to use their marketplace clout to protect the environment.