Are you considering installing property to make your home more energy-efficient? These improvements may include new building envelope components, such as insulation, windows, doors, a more efficient primary air circulating fan, furnace, boiler, central air conditioner, or water heater.
The good news is that Uncle Sam will underwrite some of the cost of buying and installing this property through an income tax credit called the energy-efficient home improvement credit.
The credit is equal to the sum of 30% of the expenses that you pay for qualified property. You can also claim a credit for up to $150 of the cost of a home energy audit, an inspection, and a report identifying the most significant and cost-effective energy efficiency improvements for your home.
The credit is limited to $1,200 per year and subject to the following additional credit limits: (a) $600 for credits for residential energy property expenditures (including specific heat pumps, central air conditioners, water heaters, and hot water boilers), windows, and skylights; and (b) $250 for any exterior door ($500 total for all exterior doors). In addition, a $2,000 annual limit applies to the cost of specified heat pumps, heat pump water heaters, and biomass stoves and boilers. Fortunately, these are yearly limits rather than lifetime limits. So, for example, if you take a $1,200 credit this year, you can also take another $1,200 credit for improvements made next year.
The expenses must be for the property initially placed in service by you and made on or in connection with a home located in the U.S. and used by you as a residence or, in some cases, as your primary residence to be eligible for the credit.
You can claim the credit in the year the installation is completed. The credit covers the costs of the property purchased and the expenses of installing it.
The credit is allowed against regular income tax liability and alternative minimum tax (AMT). And there’s no phaseout of the credit based on income, so you can claim it no matter how much income you had for the year.
We would be happy to review with you in more detail the tax and other aspects of your contemplated purchase of qualified energy efficiency improvements and/or residential energy property expenditures. Please call if you would like to discuss this further.