If you upgraded your home to improve energy efficiency or make use of renewable energy in 2014, you could be eligible for valuable energy efficiency tax credits. Uncle Sam currently offers two: the Residential Energy Efficiency Property Tax Credit and the Nonbusiness Energy Property Tax Credit.
Here’s how it works: If you purchased and installed any combination of qualifying equipment and products at your primary residence by December 31, 2014, you can apply for the credits with the help of IRS Form 5695, purchase receipts and manufacturer certifications (e.g., the Energy Star label for windows), and your tax adviser’s guidance.
Residential Energy Efficiency Property Tax Credit
This credit, good through 2016, is equal to 30% of the cost of qualifying solar, wind and geothermal equipment, including installation. There is no upper limit on the amount of the credit, but the maximum tax credit for fuel cells is $500 for each half-kilowatt of power capacity, or $1,000 for each kilowatt.
Here is a list of qualifying equipment:
- Solar panels, or photovoltaics, for generating electricity. The electricity must be used in the home.
- Solar-powered water heaters. The water heated by the system must be used inside the home, and at least half of the home’s water-heating capacity must be solar. (Solar heaters for swimming pools and hot tubs do not qualify.)
- Wind turbines that generate up to 100 kW of energy for residential use.
- Geothermal heat pumps that meet federal Energy Star guidelines.
- Fuel cells that rely on a renewable resource (usually hydrogen) to generate power for a home. The equipment must generate at least 0.5 kW of power.
According to the U.S. Department of Energy, you can claim the Residential Energy Effiiciency Property Credit for solar, wind and geothermal equipment in both your principal residence and a second home. But fuel-cell equipment qualifies only if installed in your principal residence.
Nonbusiness Energy Property Tax Credit
This credit is due to expire after 2014, although it has been extended in the past. For this credit, the IRS distinguishes between two kinds of upgrades: “qualified energy efficiency improvements” and “residential energy property costs.” You can claim a credit for 10% of the cost of qualified energy efficiency improvements (excluding labor or installation costs) and 100% of residential energy property costs.
Equipment and materials can qualify for the Nonbusiness Energy Property Tax Credit only if they meet technical efficiency standards set by the Department of Energy. The manufacturer can tell you whether a particular item meets those standards.
Here is a list of what the IRS considers “qualified energy efficiency improvements”:
- Home insulation that reduces heat loss or gain
- Exterior doors
- Exterior windows and skylights
- Storm windows and storm doors installed over certain types of windows and doors
- Metal and certain asphalt roofs designed to reduce heat loss or gain
Here is a list of what the IRS considers “residential energy property costs.”
- Electric heat pumps
- Electric heat pump water heaters
- Central air conditioning systems
- Natural gas, propane or oil water heaters
- Stoves that use biomass fuel
- Natural gas, propane or oil furnaces
- Natural gas, propane or oil hot water boilers
- Advanced circulating fans for natural gas, propane or oil furnaces
Significant limits apply to this credit. It is worth a maximum of $500 for all years combined, so if you have already taken a total of nonbusiness energy property credits exceeding $500 in previous years, you are no longer eligible to use this credit for your 2014 tax return. Of that combined $500 limit, a maximum of $200 can be for windows. The maximum tax credit for a furnace circulating fan is $50. The maximum credit for a furnace of boiler is $50. The maximum credit for any other single residential energy property cost is $300.