A reduced credit for home energy-savings improvements is available for 2011. The credit generally equals 10% of a homeowner's cost of eligible energy-saving improvements, up to a maximum lifetime tax credit of $500. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not count.
Home Energy-Savings Improvement Credit – For 2009 and 2010 taxpayers were allowed a 30% credit for home energy-savings improvements with a 2-year combined maximum of $1,500. For 2011, that credit has been replaced by the more restrictive credit rules in place during 2006 and 2007 with a less lucrative 10% credit and a $500 lifetime cap. Additionally, certain efficiency standards that were weakened in the American Recovery and Reinvestment Act are restored to their prior levels, and the provision provides that windows, skylights and doors that meet the Energy Star standards are qualified improvements.
Thus there are two sets of rules, those applying to 2009 and 2010 and those that apply to 2011 (same rules that were in effect in 2006-2007).
2009 & 2010 Tax Credit for Residential Energy Improvements – Energy property improvements to a principal residence located in the United States and placed in service during 2009 and 2010 qualify for a credit equal to 30% of the cost of:
- Qualified advanced main air circulating fan;
- Qualified natural gas, propane, or oil furnace;
- Qualified natural gas, propane, or oil hot water boiler;
- Qualified energy efficient heat pumps;
- Qualified energy efficient water heaters;
- Qualified energy efficient central air conditioners;
- Qualifying insulation;
- Qualified exterior windows including skylights;
- Qualified exterior doors;
- Qualified metal roofs coated with heat-reduction pigments; and
- Qualified asphalt roofing with appropriate cooling granules.
This credit is limited to $1,500 for 2009 and 2010 (combined, not each year).
2011 Tax Credit for Residential Energy Improvements – Energy property improvements to a principal residence located in the United States and placed in service during 2011 qualify for a credit equal to 10% of the cost of qualified improvements (generally the same improvements as listed above for the 2009 and 2010 credit. The maximum lifetime credit allowed (including any credit claimed in 2006, 2007, 2009 and 2010) is $500
No credit is allowed for amounts paid or incurred for onsite preparation, assembly or original installation of the component. The improvement's original use must commence with the taxpayer, and the improvement must reasonably be expected to remain in use for at least five years.
Residential Energy Efficient Property Credit (REEP Credit) – This credit is available for years 2009 through 2016. The installation must be on the taxpayer's main or second home located in the U.S. A 30% credit with no maximums (except as noted) applies to the following items:
- Qualified solar water heaters
- Residential solar electric systems
- Fuel cell equipment – with a maximum credit of $500 for each half-kilowatt of capacity
- Qualified wind energy equipment
- Qualified geothermal energy equipment
Labor costs for onsite installation and for piping and wiring connections are qualifying costs for these credits. However, the credits do not apply to equipment used to heat swimming pools or hot tubs.
Definition of “Qualified” – These credits are only allowed for “energy efficient components” and the term “qualified” means the components must meet certain energy efficient standards. That doesn't mean you need to have an engineering degree to determine which components qualify. For each qualified component the manufacturer is required to supply a certification that the components comply with the energy efficient standards.
The IRS has indicated that a taxpayer may rely on a manufacturer's certification that the component is eligible for the credit, provided that the IRS hasn't withdrawn the certification. The taxpayer is not required to attach the certification statement to the return on which the credit is claimed but must retain it with the taxpayer's records. Reliance on the certification is allowed only if installation of the component is consistent with the certification (for example, the item must be installed in the appropriate climate zone identified in the certificate statement).
Exception for exterior windows and skylights: Exterior windows, skylights and exterior doors are qualified energy efficiency improvements if they meet the Energy Star Program requirements in 2011.
Credit Limitations – Although these credits can be used to offset both the regular tax and AMT, they are nonrefundable personal credits that can only reduce a taxpayer's tax to zero, and any remaining balance is not refundable. If the amount of the credit for the residential energy efficient property credit (REEP - i.e., the credit for residential solar and fuel cell equipment and wind/geothermal energy equipment) exceeds the taxpayer's tax after subtracting other nonrefundable personal credits, the excess can be carried to the next tax year and is added to that year's allowable credit.
Caution - You are strongly urged to contact this office before entering into any contractual arrangements to install any of these energy items to first verify what your tax benefit might be.