What Improvements and Property Qualify for the Residential Energy Credit?
The Residential Energy Credit has been extended for tax year 2015 with a few revisions and limitations.
The Nonbusiness Energy Property Credit is aimed at homeowners installing energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, but can still provide substantial tax savings.
You may be able to take a credit equal to the sum of:
- 10% of the amount paid or incurred for qualified energy efficiency improvements installed during the 2014 tax year, and
- Any residential energy property costs paid or incurred in 2015.
This credit is limited by:
- A total combined credit limit of $500 for all tax years after 2005.
- A combined credit limit of $200 for windows for all tax years after 2005.
- A credit limit for residential energy property costs for 2015 of $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property.
NOTE: If the total of any nonbusiness energy property credits you have taken in previous years (after 2005) is more than $500, you typically will be unable to take the credit in 2015.
Qualified energy efficiency improvements are the following building envelope components installed on or in your main home that you owned during 2015 located in the United States if the original use of the components begins with you, the component can be expected to remain in use at least 5 years, and the component meets certain energy standards.
- Any insulation material or system that is specifically and primarily designed to reduce heat loss or gain of a home when installed in or on such a home.
- Exterior windows and skylights.
- Exterior doors.
- Any metal roof with appropriate pigmented coatings or asphalt roof with appropriate cooling granules that are specifically and primarily designed to reduce the heat gain of your home.
Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment.
- The credit equals 30% of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.
- The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property.
- Generally, labor costs are included when figuring this credit.
Note: Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.
Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits when they file their 2015 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A.
For additional information, please refer to Form 5695.