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The energy tax credits are small, but at least a credit is better than a deduction:

Deductions just reduce your taxable income.
With a credit, you get a dollar-for-dollar reduction in your tax liability: If you get the $500 credit, you pay $500 less in taxes.
Other limits on IRS energy tax credits besides $500 max

Credit only extends to 10% of the cost (not the 30% of yesteryear), so you have to spend $5,000 to get $500.
$500 is a lifetime limit. If you pocketed $500 or more in 2009 and 2010 combined, you’re not entitled to any more money for energy-efficient improvements in the above seven categories. But if you took $300 in the last two years, for example, you can get up to $200 in 2011.
With some systems, your cap is even lower than $500.
$500 is the max for all qualified improvements combined.
Certain systems capped below $500

No matter how much you spend on some approved items, you’ll never get the $500 credit—though you could combine some of these:

System Cap

New windows $200 max (and no, not per window—overall)
Advanced main air-circulating fan $50 max
Qualified natural gas, propane, or oil furnace or hot water boiler $150 max
Approved electric and geothermal heat pumps; central air-conditioning systems; and natural gas, propane, or oil water heaters $300 max

And not all products are created equal in the feds’ eyes. Improvements have to meet IRS energy-efficiency standards to qualify for the tax credit. In the case of boilers and furnaces, they have to meet the 95 AFUE standard. EnergyStar.gov has the details.

Tax credits cover installation—sometimes

Rule of thumb: If installation is either particularly difficult or critical to safe functioning, the credit will cover labor. Otherwise, not. (Yes, you’d have to be pretty handy to install your own windows and roof, but the feds put these squarely in the “not covered” category.)

Installation covered for:

Biomass stoves
HVAC
Non-solar water heaters

Installation not covered for:

Insulation
Roofs
Windows, doors, and skylights

How to claim the 2011 energy tax credit

Determine if the system you’re considering is eligible for the credits. Go to Energy Star’s website for detailed descriptions of what’s covered; then talk to your vendor.
Save system receipts and manufacturer certifications. You’ll need them if the IRS asks for proof.

File IRS Form 5695 with the rest of your tax forms in 2012.