Home Energy Credits

Tax legislation passed in 2008 reinstated and expanded the residential energy improvement credit for only 2009 (this credit was last available in 2007) and extended and expanded the tax credit for residential solar and fuel cell equipment through 2016.  This gives taxpayers who want to “go green” a chance to offset some of the cost of going green with tax credits.  

These are two distinctly different credits with different requirements and limitations.  Because of these limitations, there are circumstances where a taxpayer may not benefit from the credits.  The following is an overview of these credits, but before entering into a contractual arrangement to install any of these energy items, please contact this office first to verify what the tax benefit might be.

• Tax Credit for Residential Energy Improvements - Energy improvements to a principal residence located in the United States and placed in service during 2009 qualify for the residential energy improvements credit. This credit also was available in tax years 2006 and 2007, but not for 2008.  Generally, the credit is the cost (up to certain limits) for qualifying heat pumps, boilers, water heaters and fans meeting specific energy efficient standards certified by the manufacturer.

In addition, a taxpayer may qualify for a credit of 10% of the cost of qualifying insulation, exterior windows including skylights, exterior doors, metal roofs coated with heat-reduction pigments and asphalt roofing with appropriate cooling granules. 

However, the total lifetime credit is limited to $500, of which no more than $200 can be for window components, $50 for an advanced main air circulating fan, $150 for a qualified furnace or hot water boiler, or $300 for any qualified central air conditioner, heat pump, or water heater. Installation expenses do not count as part of the cost for determining the credit.

• Tax Credit for Residential Solar and Fuel Cell Equipment –

o Residential solar equipment - For property placed in service before the end of 2016, a credit is allowed for 30% of the cost of qualifying solar water heaters, up to $2,000 per year, and a credit subject to the same limits also applies for photovoltaic (electricity-generating) solar panels but the $2,000 per year limit no longer applies after 2008.  The foregoing applies to the taxpayer’s first or second homes.

o Fuel cell equipment - In addition, a credit of 30% of the cost is allowed for fuel cell property, up to a maximum credit of $500 for each half-kilowatt of capacity installed per year on the taxpayer’s principal residence.

o Wind & Geothermal energy equipment - A 30%-of-cost credit is allowed for qualified systems placed into service before 2016. The credit is limited to $500 for each half-kilowatt of capacity (maximum $4,000 for wind turbines and $2,000 for geothermal heat pumps).

Labor costs for onsite installation and for piping and wiring connections are qualifying costs for these credits.  However, the credits do not apply to equipment used to heat swimming pools or hot tubs. 

Credit Limitations – Although these credits can be used to offset both the regular tax and AMT, they are non-refundable personal credits that can only reduce a taxpayer’s tax to zero, and any remaining balance is not refundable. If the amount of the credit for the residential energy efficient property credit (i.e., the credit for residential solar and fuel cell equipment and wind/geothermal energy equipment) exceeds the taxpayer’s tax after subtracting other nonrefundable personal credits, the excess can be carried to the next tax year and is added to that year’s allowable credit.

Check with this office first to verify the tax benefits before signing on with a contractor or salesperson.  That way your tax benefits can be determined based on your particular tax situation before you obligate yourself. 

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