By JC Leahy, MA Accounting
Maximum Legal Refund (tm) Silver Spring, Maryland
Income Tax Preparation and Consulting
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Congress allowed the Residential Energy Tax Credit to expire at the end of 2007. It was not available in 2008, then was reintroduced in 2009 with changes and complications.
Here's the current deal:
There are now actually TWO Residential Energy Tax Credits: (1) The Nonbusiness Energy Property Credit, and (2) The Residential Energy Efficient Property Credit. Both are "nonrefundable credits" -- which means that to the extent the tax credit exceeds your tax liability you don't get the credit. .
NON BUSINESS ENERGY PROPERTY TAX CREDIT
This credit is limited to a total of $1,500 between the years 2009 and 2010. That means if you get a $1,500 credit in 2009 for installing energy efficient windows, don't expect another dime in 2010 for installing energy efficient doors. There is no carryforward or carryback provision for any unused portion of your Nonbusiness Energy Property Tax Credit.
The credit is equal to 30% of the cost of qualified improvements to your PRINCIPAL RESIDENCE located in the United States -- up to the $1,500 limit mentioned above. Qualified improvements include energy efficient insulation, exterior windows, doors, skylights, heat pumps, water heaters, furnaces, boilers, central air conditioners and certain metal and asphalt roofs. With the old, pre-2008 Residential Energy Tax Credit, you could rely on the Energy Star label to be sure your improvement qualified for the tax credit. This is no longer true. With the exception of windows and skylights purchased before June 1, 2009, the IRS now publishes stricter, detailed guidelines that determine exactly which products qualify and which don't. Fortunately, the taxpayer can rely on the manufacturer's certification that any particular product meets the IRS guidelines. If you plan to claim this tax credit, be sure to get a copy of the manufacturer's certification. You don't need to attach it to your tax return, but you need to keep it on file.
Your Nonbusiness Energy Tax Credit may be reduced or disallowed if you claim certain other nonrefundable personal credits. There's a special tax form to accomplish this take-back: Form 5695. On Form 5695, you will subtract the amount of the following tax credits from what you thought would be your $1,500 : the credit for foreign taxes, the child and dependent care expenses credit, the credit for the elderly and disabled, and education tax credits.
Again, this is a "nonrefundable credit". This means that you can only get the credit up to the amount of your income tax liability. Unlike some nonrefundable credits, there is no carryback or carryforward of the limited portion; that amount is simply be lost.
So there are a lot of pitfalls and caveats, but the Nonbusiness Energy Property Tax Credit may help you improve the energy efficiency of your home.
RESIDENTIAL ENERGY EFFICIENT PROPERTY TAX CREDIT
This is an entirely different credit than the one outlined above, but it sounds similar in ways.. This one also goes on Form 5695 and is equal to 30% of the cost of qualified property. This one also is reduced or eliminated by those other personal nonrefundable credits I enumerated; viz., the foreign tax credit, the child and dependent care expenses credit, the credit for the elderly and disabled, and education tax credits This one also a nonrefundable credit. Products also have to comply with detailed standards published by the IRS, but the taxpayer may rely on certifications issued by manufacturers.
The Residential Energy Efficient Property Credit does not have a $1,500 cap. In fact, there is no cap at all, except for a $500 per half-kilowatt limit on fuel cells. Additionally, there ARE carryforward provisions from 2008 and to 2010, but only to the extent that the credit was limited by the tax-liability limit -- NOT for the other-personal-tax credit limit.
Qualified property for this credit is strictly defined as two groups:
- Group one: Qualified residential solar panels, solar water heating equipment, wind turbines, and geothermal heat pumps -- but not to the extent that any of these items is used to heat a swimming pool or hot tub. Products in this group DO NOT have to be installed on your principal residence.
- Group two: Qualified residential fuel cells. Fuel cells DO have to be installed on your principal residence located in the United States. They must have a capacity of at least half a kilowatt, and the credit cannot exceed $500 per kilowatt
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Income Tax Preparation and Consulting