The topic of applying for a Home Energy Tax Credit makes people react in one of three ways: their eyes immediately glaze over, some go catatonic, and others just break down and cry. Don't worry, this is the summary you've been looking for; hopefully I am not too late. Let's start with what it is.
What is a Home Energy Tax Credit?
I will not even pretend to be a tax adviser, but I can tell you what a tax credit is. A tax credit is a dollar-for-dollar reduction of federal income tax for qualifying investments or expenses. These can include (but are not limited to) child and dependent care expenses, education expenses, adoption expenses, expenses for paying foreign taxes, and in the case of home energy tax-credits, investments made in improving your home energy efficiency.
By the way, tax credits are more valuable than tax deductions, such as state or local income taxes, property taxes, mortgage interest, medical expenses, etc. Tax deductions only reduce the amount of income that is taxed, whereas, tax credits reduce the taxes you owe - big difference.
What are the Available Home Energy Tax Credits?
As of this page's update in October 2011, tax credits for energy efficiency apply to building new homes, retrofits for heating and cooling equipment, shell improvements (insulation, windows, etc.), appliances, solar and geothermal systems, fuel cells and micro-turbines, and energy conservation subsidy inclusion (participating in your utility company's conservation program).
According to the IRS (www.irs.gov), "...Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A. Use Form 5695, Residential Energy Credits, to figure and claim these credits."
Below is a summary of the home energy tax credit compiled - very painstakingly - for the different programs as of April of 2011. While the focus of this website is not new homes - I take it for granted that they are all very energy efficient ;-), I am including the information on energy efficiency tax credit for new homes for the sake of completeness. Happy reading...
Residential Heating and Cooling Equipment
Shell Improvements to Existing Homes
There is a home energy tax credit limit of $500, overall, in 2011 for a given taxpayer including heating/cooling credits in 2011.
Envelope measures eligible for 10% of the total cost, for:
IRS guidance on the home energy tax credit can be found at http://energytaxincentives.org/general/irs_regs.php
In this program credit was provided to manufacturers of refrigerators, clothes washers, and dishwashers and is passed along to the customer. Credits are tied to a tiered efficiency criteria for 2011 - meaning, the higher the efficiency, the higher the credit:
Solar and Geothermal Systems
This is under The Residential Renewable Energy Tax Credit program. Photovoltaic systems and solar hot water systems are eligible. Ground source heat pumps meeting Energy Star specs with integrated water heating are also eligible. Solar hybrid lighting systems also eligible for business credit.
The home energy tax credit is 30% (same for business tax credit) and lasts through Dec. 31, 2016. There is a maximum cap of $2,000 for systems installed before Dec. 31, 2008. There are NO maximum caps for systems installed after Jan. 1, 2009.
Stationary Fuel Cells and Micro-turbines
While these credits apply to homeowners, so far, businesses have been the primary beneficiaries.
The Residential Energy Conservation Subsidy Inclusion
This one is a bit fuzzy - it is a personal exemption, and allows a credit for nontaxable subsidies from utility companies. Utility companies can offer rate reductions or electric credits to customers who participate in utility energy conservation programs. If you have participated in a voluntary conservation program through your utility company, you should check with a tax adviser for information on possible tax exemptions.
Have you had enough? Can your eyes still see straight? Good, cause now you can go back to Energy Rebates to see how you can put more money in your pocket.
I, on the other hand, will try something a bit more fun like practice walking on burning coals...
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