It’s difficult in the summer to visualize three feet of snow on the lawn, a slippery sidewalk and a drafty threshold, but in just a few months, they will all be back. It’s much easier to fix your home now instead of when the cold wind is howling. And the year you make home improvements is the year that you’ll reduce your heating bill.
There are three energy credits of interest to homeowners. The first is known as “Qualified Energy Efficiency Improvements” and covers insulation, roofs and windows in existing homes.
The second is “Residential Energy Property Expenditures.” This program covers furnaces, air conditioners, electric heat pumps, water heaters, biomass (wood) fueled stoves and advanced main air-circulating fans in existing homes. Both of these first two programs expire at the end of 2013.
The third program is for “Residential Energy Efficient Property.” This credit is for solar, fuel cell, small wind, and geothermal systems. It expires at the end of 2016.
Let’s first focus on the first two programs. You can take a credit of up to 10 percent of the purchase price paid for these improvements, up to a total cost of $5000 (for a total credit of $500). That’s a maximum for the lifetime of the program. If you’ve taken any of these credits since 2005, you’ll need to subtract the credit(s) you already took from this year’s maximum credit.
Only $200 of this credit can be used for replacement windows.
Specific standards dictate what materials or systems qualify. They must meet the standards set by the 2009 International Energy Conservation Code or, if applicable, Energy Star requirements. For example, a metal roof must have pigmented coatings and asphalt roofs require cooling granules designed to reduce heat gain.
The manufacturer should provide information on whether their products qualify. When in doubt, demand proof that the materials qualify for the credit before you buy. Check the packaging and the manufacturer’s website.
Finally, the third program is a more generous 30 percent credit of the cost of installing solar, small wind, fuel cells, or geothermal systems. This third credit can be used in new as well as existing homes. If you are considering building a new home or a major upgrade, this credit might be of interest to you.
Even with the credit, it may still be more expensive in today’s energy market to invest in these systems. But as energy prices rise, the cost gap may very well narrow. There is also the satisfaction of having taken a positive step toward a better environment.
To claim any of these credits, attach Form 5695, Residential Energy Credits to your return. You should keep the certification or Energy Star label with your tax records, but don’t attach them to your tax return.
Everyone agrees that conserving energy saves money, reduces pollution and is the right thing to do. Yet Congress has passed tax breaks for saving energy several times only to let them expire, and then reinstated them several times. The latest reinstatement came in the extenders bill (American Taxpayer Relief Act of 2012) passed at the beginning of the year.
It remains to be seen if these energy credits will be extended further. Most of the other “temporary” tax breaks in the tax code were made permanent or extended for longer periods this time. The current crop of tax credits is also not as generous as prior versions. A 10 percent tax credit barely covers the sales tax paid on these items.
Fortunately, there are no income limits on using any of these credits. And even if you don’t itemize your deductions, you can still take advantage of them. These credits apply to your main residence and include mobile homes, cooperatives and condominiums. If you live in a duplex and both families chip in for new insulation, each of you can take up to the maximum credit for your share. But you may not use them to improve a rental property or your vacation home.
