As much as I have been saying that now is a great time to build (availability of contractors & trades people, competitive pricing, etc), a little research into the tax code has served to reinforce my sentiments. At both the federal and state level, a number of tax incentives and credits for energy efficient upgrades to existing homes have been put in place. While there are a few tax incentives for new construction, the majority of tax credits are in place for residential remodels.

At the Federal level, many home improvements for a principal residence that are “placed in service” in 2009 and 2010 may qualify for tax credits. In addition to more sophisticated energy efficient HVAC systems (such as geothermal, solar, fuel cell, photovoltaics, etc.), high-efficiency water boilers and furnaces qualify for a tax credit of 30% of the cost up to $1500. In addition to HVAC systems, certain roofing systems, windows & doors and insulation also qualify for federal tax credits. Please consult your tax professional to review various caps on credits and how they work.

The State level also offers tax incentives for energy efficient residential remodels. For a state-by-state breakdown of various tax incentives, please see the Database of State Incentives for Renewables and Efficiencies . Homeowners in Connecticut, for example can tap into tax incentives that eliminate 100% of the sales and use tax for qualifying energy efficient products such as;

equipment insulation, duct-air sealing and building insulation.
water heaters, furnaces, boilers and programmable thermostats.
windows / doors and caulking / weatherstripping.

So if you are planning on building, or have built an addition/alteration to your home in 2009/2010 consult your tax professional to review the possible tax incentives available to you.