Non-Business Energy Property Credit – What Qualifies?

Many taxpayers can take advantage of the non-business energy property credit. Surprisingly enough, the credit can apply to inexpensive do it yourself items – installation costs associated with insulation, doors, and windows – as well as some items that may need professional installation, such as air conditioning and heating. Taxpayers must act fast to obtain this tax credit since the benefit is set to expire at the end of 2011 under current legislation and it is currently unclear whether or not the government will extend this provision. The current non-business energy property credit for tax year 2011 establishes the following provisions:

• Taxpayers can claim a credit equal to 10% of the cost of 1) qualified energy efficiency improvements, and (2) residential energy property expenditures.
• The lifetime credit amount is limited to $500 in tax year 2011 (only $200 credit can be claimed for windows and skylights). This lifetime credit limit is reduced if credits were recognized in earlier tax years.
• The expenses must be for original property placed in service by the taxpayer and made in connection with a dwelling unit located in the U.S. and owned and used by the taxpayer as his principal residence at the time of installation.

What are qualified energy efficiency improvements?

These improvements include certain energy efficient building envelope components, such as
(a) insulation materials or systems specifically and primarily designed to reduce heat loss/gain; or
(b) exterior windows, skylights or doors, or any metal roof with pigmented coating or asphalt roof with cooling granules specifically designed to reduce heat gain.

There is a 5 year requirement for these improvements – the components must be expected to last a minimum of the 5 years, with the requirement being satisfied if the manufacturer offers a two-year warranty for replacement or repair with no additional fee.

What are residential energy property expenses?

These expenses include costs for qualified energy property that meet specific standards. The credit allowed for energy property expenditures cannot exceed:

• $300 for any energy-efficient building property. Examples include electric water pump heaters, natural gas heaters, and central air conditioning.
• $150 for a qualified furnace such as a natural gas, propane, or oil furnace; or qualified hot water boiler such as a natural gas, propane, or oil; or
• $50 for an advanced main air circulating fan.

As we near year end, homeowners looking to make an energy efficient improvement should consider this law prior to its phase out.