Seven Facts about the Nonbusiness Energy Property Credit

If you’re lucky enough to still own a home in this economy, the IRS offers some tips for claiming various credits for energy-efficient home improvements. Lower your utility bills, help the environment, AND save on your taxes, what could be better?

Thinking about making some energy saving improvements to your home this summer? Taking some energy saving steps now may lead to bigger tax savings next year. The Nonbusiness Energy Property Credit, a tax credit for making energy efficient improvements to homes was increased as part of the American Recovery and Reinvestment Act of 2009.

Here are seven things the IRS wants you to know about the Nonbusiness Energy Property Credit:

  1. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
  2. The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
  3. To qualify as “energy efficient” for purposes of this tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.
  4. Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers’ Website.
  5. Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
  6. The improvements must be made to the taxpayer’s principal residence located in the United States.
  7. To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.

Homeowners who have been considering some energy efficient home improvements may find these tax credits will get them bigger tax savings next year.

For more information on this and other key tax provisions of the Recovery Act, visit IRS.gov/recovery.
Links:

Form 5695, Residential Energy Credits ( PDF)

One nice thing about the latest version of this credit is that, unlike earlier versions of several years ago, many relatively simple, low-cost energy improvements qualify for the credit. So even if you can’t afford to convert your entire home to run off of breezes and sunshine, you can still benefit from more common upgrades like energy efficient windows and even insulation.

Personally, I’ve found the most useful overview of the tax credits, along with the criteria for each type of item that potentially qualifies, can be found at the EnergyStar website.

A couple important things to be aware of…

First, just because something is advertised as “energy efficient”, or even is a certified EnergyStar appliance, doesn’t mean it necessarily qualifies for a credit. For example, many common household appliances don’t qualify for a tax credit no matter efficient they are, so meeting the EnergyStar criteria won’t help with your tax bill. Sorry gamers, you’re not going to be able to sell your significant other on that big, new flat-screen because it’s EnergyStar and you’ll get a big tax credit for it.  If you’re considering a home improvement or upgrade, check out the EnergyStar website to find out what qualifies and how much you might save. (And even if it doesn’t qualify for a tax break, consider the more energy efficient option anyway for other good reasons.)

Second, many of these credits are “non-refundable” credits, meaning if you don’t have a tax liability before the credit is applied, then the credit won’t save you anything because they can’t make your tax liability negative. So if you have a relatively modest income and a lot of other credits and deductions (often the case if you have several dependents), then these credits might not benefit you. This is something you might want to consult with a tax advisor about if you’re not sure how your specific situation will be impacted and the credit is a deciding factor in your purchase.

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One Response to Seven Facts about the Nonbusiness Energy Property Credit

  1. […] the latest tax bill being negotiated right now in Congress: The American Opportunity Credit, certain energy credits, and favorable tax rates for long-term capital […]

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