Insulated vinyl siding has a backing composed of polystyrene foam that slides behind vinyl siding panels. The U.S. government offers a tax credit for this material, because foam sheets provide an extra layer of protection that prevents cold and warm air from filling the gaps behind the panels. Homeowners usually purchase vinyl siding foam if they live in a cold climate or a property with inadequate insulation inside the walls.
Homeowners can only take a tax credit for vinyl siding insulation on a primary residence that meets insulating standards set by the U.S. Department of Energy. They cannot claim the credit after it expires on Dec. 31, 2011 unless the federal government extends the credit. New construction and rental improvements do not allow a homeowner to qualify for residential energy credits. Homeowners must claim their credit for the tax year in which they purchased siding insulation, but they can carry over their credit into the next tax year if they have no income tax liability.
Homeowners cannot take more than a 10 percent credit for vinyl siding insulation costs, and they are limited to a $500 total credit. Individuals cannot take a deduction for the costs of installation. If they make other energy-efficient improvements, such as purchasing a new water heater or central air unit, they may not be able to take the full 10 percent credit due to the $500 limit on home improvement purchases as of 2011.
If a homeowner purchases the vinyl siding and insulation together, he should have the installer break down the cost of insulation for tax purposes. In addition, he should obtain a Manufacturer Certification Statement from the installer or the website of the manufacturer in order to prove his eligibility for the credit to the Internal Revenue Service in case the agency audits him. Homeowners can claim a residential energy tax credit for vinyl siding insulation on Line 2a of IRS Form 5695.