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Home Energy Tax Credits

The reinstatement of the American Tax Payer Relief Act of 2012 amends section 25C of the tax code, which details non-business energy tax credits, and extends these credits until December 31, 2013.

Energy Tax Credits have been extended through Dec 31, 2013Changes made to this section apply to property placed in service after 2011.  Previously, the Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010 extended section 25C by one year through 2011. It also largely returned the structure of the provision as it existed prior to the 2009 American Recovery and Reinvestment Act (ARRA), with some tighter requirements for improvements to qualify.

Between 2011 and 2013, there are differing credit values for different types of energy efficiency improvements. Some of the technical criteria for eligibility are also changed.

Who gets it? Individuals who install specific energy-efficient home improvements in their primary residences, which they own.

What energy-efficient home improvements are eligible? The overall $500 cap can be reached in several ways with the purchase and installation of energy-efficient products that meet certain efficiency criteria:

Exterior windows: Includes skylights and storm windows.

Insulation, exterior doors or roofs: Includes seals to limit air infiltration, such as caulk, weather stripping and foam sealants, as well as storm doors.

Central air conditioner, heat pump, furnace, boiler, water heater or biomass (e.g. corn) stove. A separate credit applies for geothermal heatpump systems.

In addition, to be eligible for the federal tax credits:

Windows, doors, insulation and roofs must be expected to last at least five years (a two-year warranty is sufficient to demonstrate this).

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Manufacturers can certify (in packaging or on the company’s website) which of their products qualify for the energy tax credits. Retailers, contractors and manufacturers should be able to help you determine what levels of insulation and what other products qualify.

All the improvements must be installed in or on the taxpayer’s principal residence in the United States. Condo and co-op improvements are apportioned to the owners proportionally.

How much is the credit? The tax credit amount is now 10 percent of the cost of building envelope improvements, excluding labor costs and limited to $200 for windows, and specific dollar limits for heating and cooling equipment. There is a cap on the credit amount of $500 for fiscal years 2006 through 2013 combined; if you have ever claimed this credit in the past, it counts against the $500 limit (but does not affect the $1500 limit available for 2009 and 2010). So, for example, if you claimed $300 in 2007, you can only claim $200 in 2011; if you claimed $800 in 2009, you cannot claim any more credit.

When is it available? The home improvements tax credit applies for improvements “placed in service” from Jan. 1, 2011, through Dec. 31, 2013. The IRS defines “placed in service” as when the products or materials are ready and available for use – this would essentially always refer to the installation, not the purchase.

What do I need to do to get the tax credit? You will need to file IRS Form 5695 with your taxes. However, tax forms reflecting the energy tax credits extensions under the American Tax Payer Relief Act of 2012 are yet to be released. In addition, you will need to keep at least receipts proving that you purchased the improvements and a copy of the manufacturer’s certification. Accountants and tax advisors should also be able to provide more guidance.

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IRS guidance on the energy tax credits for 2012 should be forthcoming. It will presumably substantially mirror guidance provided for the 2006 and 2007 energy tax credits, although some of the eligibility criteria have changed.

Credit values and requirements for property placed in service between 2011 and 2013:

The total credit cannot exceed $500, must be installed on a taxpayer’s principal residence in the United States, and be reasonably expected to last at least five years. The $500 limit applies to cumulative claims for this credit dating back to 2006.

For advanced air circulating fans, boilers, water heaters, heat pumps, air conditioners, and biomass stoves, the credit values listed are technically 100 percent of costs, including labor, up to that value, but in practice any of these improvements can be expected to earn this maximum value.

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