Uncle Sam wants to pay you for going green

Ready to take advantage of the federal government? You have until December 31. That's when Washington puts the kibosh on consumer tax credits of up to $500 for energy-saving products such as high-efficiency furnaces, water heaters, windows and insulation.

The good news is that credits of up to $2,000 will remain available for solar upgrades --including solar water heaters and photovoltaic roof panels --through December 31, 2008.

Even if you miss out, there are plenty of other tax breaks, rebates and discounts available to efficiency-minded homeowners through local governments, banks and utility companies.

That's what Mitch Zimmerman and his wife, Michele Freeman, discovered last year when they were looking to weatherize and add a new high-efficiency heating and cooling system to their house in Austin, Texas. The cost seemed off-putting -- until they received a postcard from their local utility company offering details of a program that provides deep discounts and low-interest loans to qualified customers looking to make their houses more energy efficient.

That utility, Austin Energy, eventually provided the name of an approved contractor who inspected the house's ductwork for leaks, added new weatherstripping to the windows and doors, and blew recycled newspaper insulation into the attic, all at a substantial discount.

Austin Energy also provided a zero-interest loan for the new HVAC system, which saved the thousands of dollars. "It's strange, since we'd never even heard about that program until we received the postcard," says Zimmerman. This Old House: Save money on energy

Other public and private utilities -- as well as state and local governments -- are on the green bandwagon, too. The Arizona House of Representatives sponsors a program that lets homeowners install solar energy devices without any --increase to their property taxes. Oregon and Montana offer state tax credits for those who invest in wind power or heat-recovery ventilation systems.

But you don't have to incorporate cutting-edge technology to reap benefits: An Ohio state loan program provides interest-rate reductions of up to 50 --percent for residents who take out loans to buy Energy Star appliances. This Old House: Solar shingles

Rebates are another way states are helping to defray the cost of greening up your homestead. The utility company in Clallam County, Washington, offers $1,000 rebates for solar water heaters, which can run you $4,000 or more. And New Jersey is teaming up with its utility providers to return up to $450 of the cost of new heat pumps and air conditioners.

Some states are even giving people money just to educate themselves and their neighbors about green living. For instance, Connecticut recently introduced a "Community Innovations Grant Program," a pilot program that gives communities a $5,000 block grant to increase public awareness of renewable energy technologies. (For a state-by-state breakdown of incentives, visit DSIRE.) This Old House: Cut water bills by 80 percent

For state and local governments, as well as publicly owned utility companies, offering these incentives is a nice way to keep constituents -- read voters --happy. And for privately owned utility companies, which aren't exactly known for their benevolence, it can make good business sense. Despite the initial cost of providing the incentives, the companies can increase their bottom line by luring in new customers and retaining the ones they already have. And the --decreased demand for kilowatts from those using alternative energy sources such as solar or wind power might keep providers from having to build pricey new power plants.

Whatever the reasons, Zimmerman and Freeman are just glad they got that postcard before shelling out for new equipment. "We would have had to take out a three-year loan at about 6 percent interest, so they saved us almost $2,000," says Zimmerman, adding that the new system is also saving him about 10 percent a month on utility bills. "They even gave us a free programmable thermostat, so we can save money on cooling costs when we're not at home. It's a pretty good deal."
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