Energy credits save you tax with home improvements

Your Guide to State, Local, Federal, Estate + International Taxation

energy credits, tax, green home, IRS, eco-friendlyDid you make energy efficient improvements to your home last year? Purchase an energy efficient air-conditioner or water heater? If so, you may qualify for energy credits on your 2016 tax return.

The Energy Star website details the credits available for energy efficient purchases made in 2016 and how to qualify. Prior year credit information is also available.

IRS key facts to know about the non-business energy property credit

  • Part of this credit is worth 10% of the cost of certain qualified energy-saving items added to a taxpayer’s main home last year. Qualified improvements include adding insulation, energy-efficient exterior windows and doors, and certain roofs. Do not include the cost to install these items.
  • The other part of the credit is not a percentage of the cost. It includes the installation costs of certain high-efficiency heating and air-conditioning systems, high-efficiency water heaters and stoves that burn biomass fuel. The credit amount for each type of property has a different dollar limit so be sure to check the Energy Star website.
  • This credit has a maximum lifetime limit of $500. Taxpayers may only use $200 of this limit for windows.
  • A taxpayer’s main home must be located in the U.S. to qualify for the credit. The non-business energy property credit is only available for existing homes.
  • Be sure to have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. Taxpayers can use this to claim the credit. Do not attach it to a tax return. Keep it with tax records.
  • Taxpayers may claim the credit on their 2016 tax return if they didn’t reach the lifetime limit in past years. Under current law, Dec. 31, 2016, was the deadline for qualifying improvements to the taxpayer’s main U. S. home.

Use Form 5695, Residential Energy Credits, to claim these credits. For more information, check out the form’s instructions.

Be sure to claim your tax credit for energy efficient improvements!

Melinda Nelson, CPA