Tax Credits for Going Green

The American Recovery and Reinvestment Act provided two tax incentives for taxpayers when they invest in energy-efficient products for their home. The first is the Nonbusiness Energy Properly Credit. The credit was extended to 2011 for property placed in service this year. Improvements must be placed within the home before January 1, 2011.

”Homeowners can receive a credit rate of ten percent of the cost of qualified efficient improvements. These improvements include things such as; insulation, new energy efficient windows, doors, some roofs, and furnaces,” as stated by the IRS. There is a lifetime limit of $500 on the credit, only $200 of which can be used for windows. Sadly, the labor cost does not count toward the total cost of the item.

If the homeowner put in a high efficiency heating and cooling system, water heater, or a stove that burns biomass fuel, then and only then is the labor cost included in the total purchase price for the credit.

The second credit is the Residential Energy Efficient Property Credit. This credit equals thirty percent of the cost of what the homeowner paid for a “solar electric system, solar hot water heater, geothermal heat pumps, wind turbines, and fuel cell property,” as listed by IRS. There is no cap for the amount of credit. Labor costs can be included in the total purchase price for the credit.

Either of these credits will be reported on Form 5695 Residential Energy Credits to be filed with the Form 1040 income tax return.

Not all energy-efficient home improvements will qualify for these tax credits. Taxpayers will need to check the manufacturer’s tax credit certification statement prior to purchase. Homebuyers can find this information on the website or product packaging.

If you have any questions you can contact your local IRS office or visit the website at IRS.gov