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Home Energy Efficiency Tax Credits for 2011

Posted: Oct 08, 2012

1) The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the nonbusiness energy property tax credit, section 25C in the tax code, by one year. It also largely reverted it to the structure as it existed prior to the 2009 American Recovery and Reinvestment Act (ARRA), with some tighter requirements for improvements to qualify. This new credit structure applies to improvements made in 2011; those made in 2010 are still subject to the old credit's requirements and values.

Beginning in 2011, there will be differing credit values for different types of energy efficiency improvements. Some of the technical criteria for eligibility are also changed.

Who gets it?Individuals who install specific energy-efficient home improvements.

What energy-efficient home improvements are eligible? The overall $500 cap can be reached in several ways with the purchase and installation of energy-efficient products that meet certain efficiency criteria:

How much is the credit? The tax credit amount is now 10 percent of the cost of building envelope improvements, excluding labor costs and limited to $200 for windows, and specific dollar limits for heating and cooling equipment. There is a cap on the credit amount of $500 for fiscal years 2006 through 2011 combined; if you have ever claimed this credit in the past, it counts against the $500 limit (but does not affect the $1500 limit available for 2009 and 2010). So, for example, if you claimed $300 in 2007, you can only claim $200 in 2011; if you claimed $800 in 2009, you cannot claim any more credit.

When is it available? The home improvements tax credit applies for improvements “placed in service” from Jan. 1, 2011, through Dec. 31, 2011. The IRS defines “placed in service” as when the products or materials are ready and available for use â€" this would essentially always refer to the installation, not the purchase.

What do I need to do to get the tax credit? You will need to file IRS Form 5695 (not yet available for the 2011 tax year) with your taxes. In addition, you will need to keep at least receipts proving that you purchased the improvements and a copy of the manufacturer's certification. Accountants and tax advisors should also be able to provide more guidance.

IRS guidance on the credits for 2011 should be forthcoming. It will presumably substantially mirror guidance provided for the 2006 and 2007 credit, although some of the eligibility criteria have changed:

Credit values and requirements for 2011:

Changes from 2010 are in italics.

The total credit cannot exceed $500, must be installed on a taxpayer's principal residence in the United States, and be reasonably expected to last at least five years. The $500 limit applies to cumulative claims for this credit dating back to 2006.

For advanced air circulating fans, boilers, water heaters, heat pumps, air conditioners, and biomass stoves, the credit values listed are technically 100 percent of costs, including labor, up to that value, but in practice any of these improvements can be expected to earn this maximum value.

Qualified Item Value of Credit Eligibility Criteria
Insulation or insulating material 10% of cost. Meets the criteria required by the 2009International Energy Conservation Code.
Exterior window or skylight 10% of cost, up to $200. Meets ENERGY STAR requirements.
Exterior door 10% of cost Meets ENERGY STAR requirements.
Metal roof with pigmented coating, or asphalt roof with cooling granules 10% of cost Meets ENERGY STAR requirements.
Advanced main air circulating fan $50 Electricity use of no more than 2% of total energy used by the furnace.
Natural gas, propane, or oil furnace or hot water boiler $150 Annual fuel utilization efficiency (AFUE) rate not less than 95.
Electric heat pump water heater $300 Energy factor of at least 2.0.
Electric heat pump $300 Meets the highest efficiency tier set by the Consortium for Energy Efficiency for 2009: SEER of at least 15, an EER of at least 12.5, and an HSPF of at least 8.5.
Central air conditioner $300 Meets the highest efficiency tier set by the Consortium for Energy Efficiency for 2009: SEER of at least 16 and an EER of at least 13 for most air conditioners.
Natural gas, propane, or oil water heater $300 Energy factor of at least .82 or a thermal efficiency rating of at least 90%.
Biomass stove $300 Thermal efficiency rating of at least 75%.
Heats a dwelling or water for use in a dwelling.
Fueled by plant-derived fuel.

Geothermal Heat Pumps, Renewable Energy

Tax credits are available for geothermal heat pumps solar photovoltaic cells, solar water heaters, and fuel cells, also modified starting in 2009. These credits are available through the end of 2016.

Geothermal (or ground-source) heat pumps placed in service starting in 2009 are now eligible for a tax credit for 30 percent of the cost, with no maximum. These credits are effective through December 31, 2016. In order to be eligible for the tax credit, geothermal heat pumps must meet ENERGY STAR criteria. Currently, the criteria for ENERGY STAR geothermal heat pumps are:

In addition, the geothermal heat pumps must include a desuperheater, which helps heat water, or an integrated water heating system. In 2006 and 2007 geothermal heat pumps were eligible for a smaller credit as part of an earlier version of the home improvements credit described above.

Solar hot water heating and photovoltaic power systems placed in service by Dec. 31, 2016 are also eligible for the 30 percent credit, as are small wind systems. More information on renewable tax credits is available from the ENERGY STAR website.

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