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Residential Energy Tax Credits
June 30, 2010
Looking to save some money and do your part in protecting the environment? With the passing of the American Recovery and Reinvestment Act of 2009, taxpayers can now do both! The recently passed bill provides the opportunity for taxpayers to save significant tax dollars by claiming energy tax credits on their 2009 or 2010 federal income tax returns.
In light of the recent focus on the preservation of natural resources and promotion of a clean environment, there has been a tremendous increase in the availability of energy efficient products. A quick trip to the nearest home improvement store proves this. Numerous manufacturers currently offer a range of environment friendly products that enable consumers to save money on their utility bills. Now, in addition to these savings, taxpayers can receive an even greater benefit by claiming the tax credits available under the 2009 Recovery and Reinvestment Act. These credits are not deductions from income, but a direct reduction of the tax liability. This means a direct decrease in the amount of tax owed or an increase in the amount of tax refund.
While these credits are a great opportunity to save money, taxpayers should beware of their exclusions and stipulations before deciding which energy efficient products they want to purchase. The IRS has advised that there are certain products which may appear to have the certification needed to qualify for the tax credits, but in fact are not eligible. A common misconception is that any product with the Department of Energy Star Label is eligible for the tax credits. While this was the case with the credit available in 2007, this rule no longer applies. Consumers should educate themselves on the requirements of the manufacturer's certification to make sure they are purchasing products that will qualify for the credits.
There are various energy tax credits available for individuals, but only two of them will apply to the majority of taxpayers. The following is a summary of those two main credits that can be claimed on individual taxpayers' 2009 or 2010 tax return. If you have any questions not covered by this article, please feel free to contact us at 330.492.0094. Additionally, information on the tax credits and energy efficient products can be found on the Internal Revenue Service website (www.irs.gov) or Department of Energy website (www.energystar.gov).
Residential Energy Property Credit
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| Building Envelope Components: | Residential Energy Property: |
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| *Not all items with the Energy Star label are eligible for the tax credit. The label only indicates that the item has met efficiency guidelines established by the Environmental Protection Agency and the Department of Energy. Make sure that the item contains the manufacturer's certification described below. | |
| Eligible Dates: | Property placed in service after December 31, 2008 and before December 31, 2010. | |
| Calculation of Credit: | Equal to the lesser of $1,500 or 30% of money spent on qualified building envelope components and residential energy property during the tax year - installation/assembly costs may NOT be included for building envelope components. However, they may be included for residential energy property. | |
| Maximum Credit Available: | Credit is limited to a cumulative total of $1,500 for the 2009 and 2010 tax years (i.e. If the full $1,500 credit is claimed on a taxpayer's 2009 return, the credit cannot be claimed again in 2010 by that taxpayer.) | |
| Required Certification: | Generally may be found on a product's packaging or on the manufacturer's website. Must contain the following: | |
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| 1. Name and address of manufacturer | |
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| 2. Identification of the class of eligible building envelope component or residential energy property that the purchased property falls into | |
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| 3. Make and model number | |
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| 4. Statement that the item is eligible property for the tax credit | |
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| 5. Declaration signed by someone having the authority to bind the company to the certification that states: "Under penalties of perjury, I declare that I have examined this certification statement, and to the best of my knowledge and belief, the facts presented are true, correct, and complete." | |
| Other Facts: | Property must be installed on a qualifying dwelling which is defined as a residence within the United States that must be the principal residence of the taxpayer | |
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| If the qualifying property is a building envelope component, it must be reasonably expected that the item will be used for at least five years. An indication that the item meets this requirement is a two year warranty offered by the manufacturer at no cost. | |
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| The manufacturer's certification for windows, skylights, and doors requires more specific information regarding the efficiency of the products. Contact the 415 Group or see www.irs.gov for details. | |
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| The credit can be claimed by completing Form 5965 - Residential Energy Credits | |
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| Taxpayers are not required to attach receipts and manufacturer's certifications to their tax returns, but are advised to save them for their records | |
Residential Energy Efficient Property Credit
| Qualifying Property: | Solar Electric Systems, Solar Water Heaters, Geothermal Heat Pumps, Wind Turbines, and Fuel Cell Property with the required Manufacturer's Certification Statement |
| Eligible Dates: | Property placed in service after December 31, 2008 and before December 31, 2016 |
| Calculation of Credit: | 30% of money spent on qualifying property during the tax year - includes cost of the property as well as costs incurred for assembly and installation |
| Maximum Credit Available: | Credit is unlimited unless it is being claimed for eligible fuel cell property (see www.irs.gov for details) |
| Required Certification: | Same as certification required for Residential Energy Property Credit |
| Other Facts: | Property must be installed on a qualifying dwelling which is defined as a residence within the United States that must be the principal residence of the taxpayer |
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| The credit can be claimed by completing Form 5965 - Residential Energy Credits |
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| Taxpayers are not required to attach receipts or manufacturer's certifications to their tax returns, but are advised to save them for their records |
By: Lindsay J. Cooper, CPA
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