Energy Credits Depend on Property and Year

December 3, 2013

If you’ve been making energy improvements around your house, be sure to consider the available residential energy tax credits.

To claim a credit for 2013, the improvements must be installed by the end of this year. Some residential energy tax credits are scheduled to expire at the end of 2013, while others will remain in effect for a few more years.

The credits, which are aimed at homeowners installing energy-efficient improvements such as insulation, new windows (including skylights), certain roofs, furnaces and hot water boilers, ranged from $50 to $1,500 in years past and now are limited to a lifetime maximum of $500, depending on the type of property placed in service.

In Notice 2013-70, the IRS provides additional guidance on the types of property that qualify for the credits.

Code Sec. 25C credit expires this year

Code Sec. 25C allows a credit in an amount equal to the sum of:

• 10 percent of the amount paid for qualified energy-efficiency improvements installed during the year, and
• The amount of the residential energy property expenditures paid during the year.

The credit is allowed for qualifying property placed in service through Dec. 31, 2013. For property placed in service in tax years beginning in 2009 and 2010, Code Sec. 25C allowed a maximum aggregate credit of $1,500. For other years, the credit is limited to the excess of $500 over the aggregate credits allowed for all prior tax years ending after Dec. 31, 2005 (including credits claimed in 2009 and 2010).

The credit under Code Sec. 25C may be limited depending on the type of property placed in service. For example, the maximum credit allowed for any tax year is $50 for any advanced main air-circulating fan; $150 for any qualified natural gas, propane or oil furnace or hot water boiler; and $300 for any item of energy-efficient building property. In the case of amounts paid for exterior windows, including skylights, the credit is limited to the excess of $200 over the aggregate maximum amount of the credits allowed for exterior windows for all prior tax years ending after Dec. 31, 2005.

Code Sec. 25D credit available through 2016

Code Sec. 25D allows a credit for qualified expenditures made for residential energy-efficient property placed in service before Jan. 1, 2017. The IRS defines qualified expenditures for residential energy-efficient property to include:

• Qualified solar electric property expenditures for use in a qualifying dwelling unit
• Qualified solar water heating property expenditures for property that heats water for use in a qualifying dwelling unit, if at least half of the energy used by the property for such purpose is derived from the sun
• Certain qualified fuel cell property expenditures
• Qualified small wind-energy property expenditures for property that uses a wind turbine to generate electricity for use in connection with a qualifying dwelling unit
• Certain qualified geothermal heat pump property used to heat a dwelling unit or as a thermal energy sink to cool the dwelling unit that meets the requirements of the Energy Star program

You may rely on a manufacturer’s certification that property is eligible for either credit – so long as the IRS has not withdrawn the manufacturer’s right to make the certification.