The Energy-Efficiency Tax Credit

Take advantage of improved tax credits available for a number of energy-efficient home improvements. The Existing Home Retrofit Tax Credit (Tax Code Section 25C): Tax credits are available at 30 percent of the cost, up to a $1,500 lifetime limit, for installation in 2009 & 2010 (for existing homes only) of these products:
Building envelope components (Installation costs not included):

  • Insulation material or system
  • Exterior window, skylight, door, storm window or storm door with a U factor of .3 or below
  • Metal or asphalt roofs that resist heat gain

Qualified energy products (Installation costs may be included):

  • Electric heat pump water heaters that yield an energy factor of at least 2.0 in the standard Department of Energy test procedure.
  • Electric heat pumps and central air conditioners that achieve the highest efficiency tier established by the Consortium for Energy Efficiency as of Jan. 1, 2009.
  • Natural gas, propane or oil water heaters with an energy factor of at least .82 or thermal efficiency of at least 90 percent
  • Biomass burning stoves with a thermal efficiency rating of at least 75 percent as measured using a lower heating value
  • Natural gas and propane furnaces that achieve an annual fuel utilization efficiency rate of not less than 95
  • Natural gas, propane, or oil water boilers and oil furnaces that achieve an annual fuel utilization rate of not less than 90
  • Advanced main air conditioning fans with annual electricity use of no more than 2 percent of the total annual energy use of the furnace

The Wind, Solar, Geothermal and Fuel Cell Tax Credit (Tax Code Section 25D): Tax credits are available at 30 percent of the cost, with no cap through 2016, for existing homes and new construction, for:

  • Geothermal Heat Pumps
  • Solar Panels
  • Solar Water Heaters
  • Small Wind Energy Systems
  • Fuel Cells

The energy-efficiency home products must be “placed in service” between Jan. 1, 2009 and Dec. 31, 2010. The credits are only valid for improvements made to the taxpayer’s principal residence, except for qualified geothermal, solar, wind property, which can be installed on any home used as a residence by the taxpayer.

Home owners can claim the 25C and 25D credits on Form 5695 when they file their income tax returns. Check with your tax professional to ensure correct application of the energy-efficiency tax credit. Retain all receipts as well as records that include:

  • Name and address of manufacturer
  • Identification of the class of eligible building envelope component
  • Make, model number and any other property identifiers
  • A statement that the component is eligible for the credit (may include U factor, class of window or door, etc.)

For a short, one-page description of the energy efficiency tax credits, download this fact sheet.

IRS Clarifies What Qualifies for Home Owner Energy Tax CreditThe Internal Revenue Service has published new guidance on Internal Revenue Code Section 25C, which allows up to a $1,500 tax credit for home owners who install energy-efficient windows, insulation and other qualifying products. The tax credit is equal to 30 percent of the qualified energy efficiency expenses paid by the home owner, but it is limited to $1,500 for improvements made during 2009 and 2010.

Notice 2009-53 explains the requirements for home owners to claim the 25C credit and provides detailed technical information regarding what improvements can qualify. Home owners can claim the credit only for improvements made to an existing home. However, NAHB has learned from the IRS that tax credit-qualified improvements installed in an addition to an existing home also qualify for the 25C program.

Among the highlights:

  • Tax credit eligible products must be reasonably expected to remain in use for at least five years. One method taxpayers can rely on to satisfy this requirement is to purchase products from a manufacturer who offers a warranty lasting at least two years at no additional cost.
  • Not all Energy Star-rated products that are installed qualify for the tax credit. The Energy Star Web site includes a detailed listing of products that qualify for the section 25C program.
  • The credit excludes installation costs for building envelope components — such as insulation and windows. In order for the home owner to claim the credit, the remodeler must provide an itemized breakout of the cost of these installed products, minus any labor or installation charges.

Also of importance, Notice 2009-53 provides the set of transition rules for qualified products installed before June 1, 2009. For these installations, taxpayers can claim for tax credit purposes the installation of property that meets less stringent energy efficiency requirements.In particular, taxpayers can claim the credit for installation of windows and skylights that meet Energy Star requirements, requirements listed under prior IRS Notice 2006-53 or manufacturers’ certifications for 25C made under IRS Notice 2006-53. For installations on or after June 1, the requirements listed in Notice 2009-53 and described above are binding.

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