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Home improvements that put green in your pocket

Workers install Solar Service Inc. photovoltaic (PV) solar electric panels on the roof of a home in Park Ridge, Illinois.
Kevin Winter | Getty Images
Workers install Solar Service Inc. photovoltaic (PV) solar electric panels on the roof of a home in Park Ridge, Illinois.

Ah, Memorial Day. Time to fire up the barbecue, break out the shorts and sandals, and make sure the air conditioning is working.

Along with summer fun comes heavy energy use in many parts of the country. But there are more and more ways to cut that usage—and to be rewarded for doing so with money in your pocket.

The federal government has long offered tax credits and deductions for homeowners who install things like solar panels and geothermal heat pumps. States also offer myriad tax benefits for energy-saving home improvements. Utilities, too, offer incentives to consumers who make their homes more energy efficient.

The real trick is figuring out which of the myriad tax incentives out there make the most sense for your plans and your home.

On the federal level, taxpayers can receive a 30 percent tax credit for a variety of improvements. There is no limit on the credit available for solar-electric improvements, small wind-energy systems, and geothermal heat pumps, and those credits can be used on improvements to primary residences and vacation homes. There is a $500 limit on the credit for fuel cells, and it is applicable only to a primary residence.

Among states, green tax incentives vary widely, but the Department of Energy and the North Carolina Solar Center have pulled together a list of incentives across the country.

Utilities also offer incentives of various kinds to customers who make changes to cut energy use. For example, Duke Energy offers a range of rebates, discounts, and other incentives, from pointing customers to contractors to selling discounted energy–efficient lightbulbs.

Of course, you may be planning to sell your home, and the idea of improvements that will save the next owners money is less than appealing. Even then, however, you can benefit from going green.

Researchers at the University of California, Berkeley and the University of California, Los Angeles have measured the effect of green home improvements on the price of a house in California. Using an average California home price of $400,000, they found that in their most conservative estimate, homes with a green home label sold for at least $8,400 more than homes without that designation, a 2.1 percent premium.

"Green homes transact for significantly higher prices as compared to other recently constructed homes that lack sustainability attributes," the paper concluded. And Nils Kok, one of the paper's authors, said the premium, at least on rental properties, existed during the housing downturn as well.

Energy-efficient cars also come with significant financial incentives. Consumers who buy plug-in hybrid vehicle or electric cars can receive a federal income tax credit of as much as $7,500, and there are some incentive programs at the state level as well.

The incentives made it easier for Richard and Nancy Rabe to make their La Crosse, Wisconsin, home greener. They replaced old windows with new, highly insulated ones, and replaced the central air unit with a heat pump they used for both heating and cooling.

When they recently relocated to Grand Rapids, Michigan, Rabe said the improvements they made to their Wisconsin house "were part of the pitch sheet" for the real estate agent. And while Rabe can't measure the impact of the improvements on his home's value, he points out that it sold in three weeks, while a similar house on the street took six months.

Rabe also looked for a home with green features, ssuch as a high thermal-resistance value, when buying in Grand Rapids.

"We found a place with high R-value windows, high efficiency furnace and hot water heater, newer energy efficient appliances, and good insulation (and only four miles from work!)" he said.

Rabe said his main reason for cutting his energy use is environmental. "We have taken and will take advantage of tax incentives when available, but they are not the primary reason we have made the 'green improvements' we have made. Our primary reason is reduction in energy consumption with the corollary benefits of conservation and long term economics."

But any way you slice it, Rabe said going green makes both environmental and financial sense.

—By CNBC's Kelley Holland.

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