Homeowners who install energy efficient improvements such as insulation, new windows and furnaces may qualify for the Nonbusiness Energy Property Credit. The credit is more limited than in the past years, but can still provide substantial tax savings.
The rate for the Nonbusiness Energy Property Credit is 10 percent of the cost of qualified energy efficiency improvements, such as energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.
The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.
The Nonbusiness Energy Property Credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011. Qualifying improvements must be made and used in the taxpayer’s principal U.S. residence before January 1, 2012.
The Residential Energy Efficient Property Credit is designed to encourage homeowners to invest in alternative energy equipment.
The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. No cap exists on the amount of credit available except for fuel cell property. Generally, labor costs are included when figuring this credit.
Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.
Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A.