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Ramp Up Energy Credits at Home

(posted: July 20th, 2016)

Get energy tax credits for going green at home
Are you prepared for the first heat wave of the summer?

It's going to be a doozy, but you can cool things down.


Make energy-saving improvements to your home.

Many costs will qualify for an energy tax credit, a dollar-for-dollar reduction of your tax bill, on your 2016 return.

As with other “tax extender” items, the smaller $500 residential energy credit expired at the end of 2014, only to be retroactively restored for 2015 by the Protecting Americans from Tax Hikes (PATH) Act. The PATH Act also extends these credits, but only through 2016.

The IRS recently posted a timely reminder about the energy credits prior to the advent of summer. There are two separate credit opportunities for homeowners: the traditional “residential energy credit” and the “residential energy-efficient property credit.”

$500 Residential Energy Credit

The residential credit is equal to 10% of the costs of qualified energy-saving items added to your principal residence. But there's a lifetime limit of $500 and a special dollar limit on certain types of expenses.

The list of expenses eligible for this credit includes:

  • insulation materials
  • exterior windows and skylights
  • exterior doors
  • central air conditioners
  • natural gas, propane and oil water heaters or furnaces
  • hot water boilers
  • electric heat pump water heaters
  • certain metal roofs
  • biomass stoves
  • advanced main air circulating fans

Currently, the credits are capped as follows:

  • windows at $200
  • furnaces and boilers at $150
  • air conditioners, air source heat pumps and biomass stoves at $300
  • advanced main air circulating fans at $50.

What's more, be aware that the lifetime limit of $500 is reduced by energy credits claimed in prior years. For example, if you realized a $200 credit for central air conditioning installed in 2014, your maximum remaining credit is $300.

In its new Tax Tip, the IRS advises taxpayers to keep the written manufacturer certification indicating that the product qualifies for the credit. This certification is usually posted on the manufacturer's website or included in the product packaging. You can rely on it to claim the credit, but you should not attach it to your tax return. Keep it with your other tax records.

30% Residential Energy-Efficient Property Credit

This more-generous tax credit equals 30% of the cost of alternative energy equipment installed on or in your home. For this purpose, qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines, and fuel cell property.

Unlike the $500 residential energy credit, there is no dollar limit on the credit for most types of property. If your credit exceeds your tax liability, you can carry forward the unused portion of this credit to next year's tax return. Note that this credit is available for installations in a home other than your principal residence (unless the alternative energy equipment is qualified fuel-cell property).

Both the residential energy credit and residential energy-efficient property credit are claimed on Form 5695, Residential Energy Credits. The instructions to Form 5695 can provide additional guidance.

Please Contact Us with any questions.

Images: 123RF


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