Tax Credit for Energy Efficient Improvements

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Implementing energy-efficient improvements in your home not only helps the environment, but it keeps your wallet filled too. Along with long-term energy savings, you will save money through tax credits. The federal government actively promotes its energy-efficiency tax-credit programs to lead American homes toward increased energy efficiency.


Features

President Barack Obama signed a provision of the American Recovery and Reinvestment Act of 2009 that allows homeowners to receive tax credits by installing qualified products with the Energy Star label to improve the energy efficiency of their homes. The home improvement tax credit provisions come with two expiration dates — Dec. 31, 2010, and Dec. 31, 2016.

2010 Tax Credit

Homeowners could claim a tax credit of 30 percent of the cost, up to $1,500, on the purchase and installation of qualified energy efficient products, which included biomass stoves, heating, ventilating and air conditioning, insulation, metal and asphalt roofing materials, nonsolar water heaters, windows and doors. This tax credit provision expired Dec. 31, 2010, and applied to existing primary homes only. Homeowners could file their claims along their income tax returns by April 15, 2011, for items purchased in 2010.

2016 Expiration

The tax credit provision that expires on Dec. 31, 2016, has two categories. The first category includes a tax credit of up to 30 percent of the improvements’ cost and applies to existing and new homes. Both primary and secondary homes qualify; however, rentals do not. Geothermal heat pumps, residential small wind turbines and solar energy systems all qualify under the first category. The second category allows homeowners to claim a tax credit of up to 30 percent of the cost, up to $500 per 0.5 kW (kilowatt) of power capacity on residential fuel cells and microturbine systems. Existing and new construction primary homes qualify in the second category; however, rentals and secondary homes do not.

Eligibility

The maximum limit applies for combined energy-efficient products bought and installed within the effective dates. If you had already received a tax credit of 30 percent of the cost in the purchase of eligible products for your 2009 tax bill, you could not claim tax credit on these products again in 2010.

IRS Instructions

IRS Form 5695, also known as Residential Energy Credit form, for renewable and energy efficient credits, is required to claim your tax credit. Manufacturers should certify the product’s eligibility by providing a signed statement known as Manufacturer’s Certification Statement, which certifies that the product or component qualifies for the tax credit. You can obtain a copy of certification from the manufacturer, installer or retailer when buying the products. Keep the certification for your records in case the IRS questions your claim.

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