Residential Energy Credits

Question:  I recently installed energy efficient appliances and windows in my home.  Is any of this deductible? Where is it claimed? 

Answer:  There is a maximum limit of $500 per year for all improvements.  And each energy efficient appliance has its own maximum limit (see below).  

This can be claimed on Form 5695.  The allowable credit will carry to line 50 of Form 1040.  Here’s how you can determine your credit:  

1.       A maximum limit per year of $500

2.       A total limit per year of $200 for windows

3.       A total limit per year of $50 for any advanced main circulating fan

4.       A total limit per year of $150 for qualified natural gas, propane, or oil furnace or hot water boiler

5.   10% of the amount paid or incurred for qualified energy efficiency improvements installed, such as

a.       Exterior windows (including certain storm windows and skylights)

b.       Exterior doors (including certain storm doors)

c.       Any metal roof installed on a home, IF this roof has appropriate pigmented coatings that are specifically and primarily designed to reduce the heat gain of the home

6.       $300 for each item of qualified energy efficient property, such as:

a.       Certain electric heat pump water heaters; electric heat pumps, geothermal heat pumps; central air conditioners; natural gas, propane or oil water heaters

b.       Qualified natural gas, propane or oil furnaces or hot water boilers

c.       Certain advanced main air circulating fans used in natural gas, propane or oil furnaces

The following table shows what Joe Taxpayer installed in his home this year, the costs, and the allowable credit: 

Based on these numbers Joe qualifies for the maximum $500 credit.  Even though the allowable dollar amount per item equals $590, he can’t exceed the $500 maximum allowed.

Keep in mind that the term “energy efficient objects” refers to specific items.  You can’t claim your energy efficient refrigerator, washer, dryer, etc. for this credit.

But there’s more!  If you add qualified solar panels, solar water heating equipment or a fuel cell power plant to your  home (in the United States), there’s an additional credit. 

You’re allowed one credit equal to 30 percent of the qualified investment in a solar panel up to a maximum credit of $2,000.  And another credit for investing in a solar heating system. (Neither can be used to heat a pool or hot tub in order to qualify for the credit).

Here's to Energy Efficiency and getting a tax deduction/credit for your expenses.

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