Decoding the Home Energy Tax Credit
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...
- $2000 credit provided for builders of homes that exceed IECC criteria by 50%
- $1000 credit provided to manufactured home producers exceeding IECC by 30% or meeting Energy Star criteria
- $1000 credit for builders of homes 30% better than IECC was eliminated in conference IRS guidance on details can be found at http://www.irs.gov/pub/irs-drop/n-09-53.pdf
Residential Heating and Cooling Equipment
- $300 tax credit for:
- Central AC and central heat pumps with 16 SEER, 13 EER
- Electric water heaters with 2.0 EF (e.g. heat pump water heaters)
- Gas water heaters with 0.82 EF or a thermal efficiency of at least 90%.
- $150 tax credit for furnaces with AFUE 95%
- $50 furnace fans meeting CEE/GAMA spec (can earn separately or combine with credit above)
- Cap of $500 per taxpayer for heating/cooling credits plus building shell credits in 2011; credits earned in prior years count toward caps
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:
- Windows (capped at $200)
- Metal roofs with coatings to reduce heat gain
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:
- For clothes washers:
- $175 for top-loading models (2.2 MEF, 4.5 WF),
- $225 for top-loading models (2.4 MEF, 4.2 WF),
- $225 for front-loading models (2.8 MEF, 3.5 WF)
- For refrigerators:
- $150 for 30% savings relative to federal standard,
- $200 for 35% savings
- For dishwashers:
- $25 for meeting 2011 Energy Star specification (uses <307 kWh/year and 5 gal/cycle),
- $50 for models that use <295 kWh/year and 4.25 gal/cycle,
- $75 for models that use <289 kWh/year and 4.0 gal/cycle
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.
- Photovoltaic systems must meet applicable fire and electrical codes
- Solar hot water systems must provide at least half of a home’s hot water and be SRCC certified
- Pool and hot tub heaters not eligible
Stationary Fuel Cells and Micro-turbines
While these credits apply to homeowners, so far, businesses have been the primary beneficiaries.
- For fuel cell credit will last through 2016 with a tax credit of 30% of the cost of the fuel cell, up to $1000/kW of output
- Efficiency must be at least 30% and system at least 0.5 kW
- For micro-turbines, credit is 10% of cost, up to $200/kW of output
- Efficiency must be at least 26% and system less than 2 kW
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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