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Homeowner Energy Tax Credits

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Homeowner Energy Tax Credits

Thanks to a recent tax law change, certain home improvements and equipment may entitle you to a tax credit, a dollar-for-dollar reduction in your tax bill, of up to $500. The tax credit is available for qualifying property that is certified by the manufacturer as meeting energy-saving standards. In other words, you get a tax break while cutting your energy costs.

The credit is equal to the sum of:

10% of the amount you spend for improvements that curb heat loss or gain in your home (e.g., insulation, exterior windows and doors) and meet specified energy-saving criteria (limited to $200 for windows); PLUS

  • The amount spent for qualifying home systems you install that meet prescribed energy conservation standards, up to a maximum of:
    • $50 for each advanced main air circulating fan;
    • $150 for each qualified natural gas, propane, or oil furnace or hot water boiler; and
    • $300 for qualified energy-efficient property (e.g., heat pumps, water heaters, and central air conditioners).

The total credit you claim cannot exceed $500 (a lifetime limit).

The IRS recently released detailed guidance on the new energy credit. Among the points you should keep in mind:

While the energy conservation standards are quite technical, you don’t have to make an independent investigation as to whether an item qualifies for the credit. You can rely on the manufacturer’s certification.

  • You don’t have to file the manufacturer’s certification with your tax return, but you should keep it with your tax records.
  • At the time the improvements and systems are installed, you must own the home and you must use it as your principal residence (e.g., vacation home improvements don’t qualify).
  • To qualify for the 10% credit, the improvements must reasonably be expected to remain in use for at least 5 years. The IRS says you automatically meet this requirement if the manufacturer provides a two-year repair-or-replacement warranty at no additional charge.
  • For purposes of the 10% credit, you must exclude installation and site preparation costs. However, for qualifying systems, these costs can be counted.

If you would like more information on the new energy credit, please contact us.

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