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Nonbusiness Energy Property Credit May Not Last
The nonbusiness energy property credit may be taken by taxpayers who have completed home improvements that help save energy. Projects that qualify can be as simple as adding new energy efficient doors or windows, weather stripping or insulation. The credit can also be taken for improvements such as central air and heat pump installation. However, you may want to do these improvements sooner rather than later as the credit is currently only applicable through 2011, and may not be extended.
Some things you should know about the credit:
• Taxpayers may claim 10% of the cost of home improvements that increase the energy efficiency of their home.
• To qualify, the home must be in the United States and be used as the taxpayer’s primary residence when the improvements are made.
• The lifetime credit limit is $500, with specific limits such as:
o $200 for windows or skylights
o $300 for heat pumps, central air conditioning, water heaters, etc.
o $150 for furnaces or hot water boilers
o $50 for a main air circulating fan
• In order to be qualified improvements, they must use materials that are designed to reduce heat gain and or loss and meet special criteria set by the International Energy Conservation Code, or meet Energy Star requirements, and have a life expectancy of 5 years or more.
• The costs that may be deducted include assembly, labor and costs for materials.
• Taxpayers may not take a credit for expenses that used subsidized energy financing.
This credit was originally applicable only for tax years 2006 & 2007. It was then modified and extended by the Emergency Economic Stabilization Act of 2008 but only for 2009. Lastly, the credit was re-extended for the tax years 2010 and 2011 by the American recovery Reinvestment Act of 2009 and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation act of 2010, respectively.
One might think that since it has been extended so many years in the past that it is likely to be extended again. Unfortunately this may not be the case as in the last extension the credit was reduced from 30% to 10%, and the lifetime credit limit was reduced from $1500 to $500. It also used to be allowed to be taken on subsidized energy financing. This shows that Congress may have a different attitude towards extending the credit once more.
(1) IRS. Internal Revenue Service, 26 September 2011
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