If you make energy efficiency improvements or install renewable energy systems in your home, you can claim a tax credit on your federal income tax return for 2010. There are two separate credits – the nonbusiness energy property credit, which covers energy efficiency improvements, and the residential energy efficient property credit, which covers renewable energy systems. Both these credits are claimed on Form 5695 – Residential Energy Credits.
Nonbusiness energy property credit
For 2010, you can claim a credit for 30% of the cost of energy efficiency improvements, up to a maximum total credit of $1,500 for 2009 and 2010 combined. The improvements must be to your main home, which can be a house, mobile home, condominium, cooperative apartment, manufactured home, or a houseboat. This credit for energy efficiency improvements is available only for your existing home, and not a home that you are building.
The nonbusiness energy property credit covers improvements to make your home’s envelope more energy efficient, including windows, doors and skylights, metal roofs with pigmented coatings or asphalt roofs with cooling granules, and insulation. It also covers energy efficient heating, ventilating and cooling systems, water heaters, and biomass stoves. For purposes of calculating the credit, assembly and installation costs are not included.
The standards for energy efficiency for the credit in 2010 are higher than the standards for the credit that was available in 2007 and not all Energy Star qualified products qualify for the tax credit. To see whether a certain product qualifies, you can see U.S. Department of Energy’s EnergyStar website under Filing 2010 Taxes. The manufacturer must certify that their products meet these new standards and must provide you with a written statement, on the product packaging or on their website.
Residential energy efficient property credit
The credit for residential energy property costs applies to renewable energy equipment including solar energy systems, solar hot water heaters, geothermal heat pumps and wind turbines. This credit is available for existing homes and homes that are being constructed. The credit is 30% of the cost of the equipment, including assembly and installation costs, with no maximum credit. Fuel cells qualify for a credit of 30% of the cost, up to a maximum credit of $500 for each half kilowatt of capacity.
The nonbusiness energy property credit for energy efficiency improvements was extended to 2011 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. In 2011 the total amount of the credit is limited to $500. And this cap applies to all the residential energy credits you have claimed from 2006 to 2011. So if you have already claimed a credit of $500 or more prior to 2011, you cannot claim any additional credit for improvements you make in 2011.
Subject to the overall cap of $500, there are maximum credits on certain individual types of equipment. For example, the credit for windows is limited to a combined total of $200 for all years from 2006 to 2011. Natural gas, propane, or oil furnaces or hot water boilers with an annual fuel utilization rate of 95 or greater qualify for a maximum credit of $150. There is a $300 credit cap on electric heat pumps, central air conditioners, natural gas, propane or oil water heaters with an energy factor of at least 0.82 or a thermal efficiency of at least 90 percent, and biomass stoves. You can find detailed information under 2011 Federal Tax Credits for Consumer Energy Efficiency on the U.S. Department of Energy’s Energy Star website.
The credit for alternative or renewable energy systems such as solar, wind and geothermal continues in effect until December 31, 2016.
Energy Incentives for Individuals in the American Recovery and Reinvestment Act – IRS
2011 Federal Tax Credits for Consumer Energy Efficiency – Energy Star
Form 5695 – Residential Energy Credits
Residential Energy Efficiency Tax Credit – DSIRE
Residential Renewable Energy Tax Credit – DSIRE