Residential Energy Efficiency Property Credits Expiring December 31


Written By: Elissa Wurf, CPA, EA

Most of the remaining tax credits for making energy efficient home improvements are currently slated to expire on December 31, 2016, so if you have been thinking about making any of the following improvements, now is the time to act.

There are two forms of the credit, both claimed on Form 5695 attached to your 1040 individual income tax return.

The most popular of these credits have been the Nonbusiness Energy Property Credits, which have been around since 2006.  This is a credit for up to 10% of the cost of qualified energy-efficient improvements including:

  • Adding insulation;
  • Adding energy-efficient exterior doors, windows, or skylights ;
  • Purchasing a gas, propane, or oil hot-water boiler or furnace;
  • Purchasing various energy efficient heat pumps and heat pump water-heaters;
  • Purchasing a biomass stove;
  • Installing central air conditioning or an advanced main air circulating fan;
  • Adding metal or asphalt roofs.

You can find out from the manufacturer of the product whether or not it qualifies for the credit (they should have a written certification).  Items that meet or exceed the Energy Star program will qualify.  Also note that each product type listed here has its own maximum allowable credit (for example, the limit on the credit for windows is $200, while the limit for doors, insulation, and roofing is $500).  For windows, doors, insulation, roofing, and skylights, only the product cost is included, while installation and labor costs are eligible for the credit for the other items.

There is a lifetime limit of $500 of all combined qualified costs, so you may already have used this.  Your tax preparer will look at your previous year return to find out whether you still have any of the credit left to take.

The credit must be for your primary residence, which must be an existing home and not a newly constructed property, and the product must have been installed by year-end to qualify.

The second type of energy-efficient tax credit is known as the Residential Energy Efficient Property Credit.  This too is currently set to expire on December 31, and this credit is more generous and has fewer limitations.  Specifically, the credit could be worth up to 30% of the total cost of installing certain energy-efficient energy sources in your home. Unlike the nonbusiness energy credit, there is no dollar limit on the credit (except for fuel cells, limited to $500 per .5 kilowatt hour).  Additionally, the home does not have to be your primary residence (again, except for fuel cells), the credit applies to new as well as existing construction, and installation costs are included in the costs eligible for the credit.  Again, the property must be certified as energy efficient and must be installed by year end.  The types of property that qualify include:

  • Geothermal heat pumps,
  • Solar panels and solar water heaters
  • Small wind turbines (up to $4,000)
  • Fuel Cells

As usual, there is the possibility that Congress could act to extend the credits, but it is uncertain at this point given the new Administration entering in January.