Energy efficiency tax credits can be claimed in next year's tax season. There is a list of qualifying energy saving product categories. In order to qualify for the tax relief, you must have installed any of the qualifying items by the end of 2013. Here, we explain the why, what and how of much of this legislation.
Energy Efficiency Tax Credits: Why?
The 'why' might seem obvious - to promote the installation of energy efficient equipment in order to ease the pressure on fossil fuels, and to enable the USA to play its part in reducing carbon emissions into the atmosphere.
However, there is another reason, and that can be deduced from the legislation that enacted the credits: the Taxpayer Relief Act. This act was passed very late, but helped to enable the country from ending up in a very serious fiscal situation. Taxpayers gain, and so do those companies that manufacture or market such equipment.
What Energy Efficient Equipment is Included?
There are several product categories included in the energy efficiency tax credits you can claim:
- Biomass Stoves: You can claim $300 of the cost of installing biomass stoves that run on woodchips or pellets. The thermal efficiency rating must be at least 75%.
- HVAC Units: Installing Central heating, ventilation and air conditioning units enables you to claim 10% of the cost in your tax return in 2014. You can claim $300 on air source heat pumps, where heat is extracted from the outside air and transferred indoors.
- Insulation: You can claim 10% of the cost of insulation materials, but not the actual installation.
- Roofing: If you install metal or asphalt roofing that has been designed to keep your home cool, then you can claim 10% of the material cost.
- Water heaters: Water heaters qualify if run on propane, oil or natural gas, and if the thermal efficiency is at least 90% or the Energy Factor is at least 0.82. You can claim $300 for this.
- Water Boilers: You can claim $150 for a furnace or hot water boiler running on propane, natural gas or oil and with an AFUE (Annual Fuel Utilization Efficiency Rate) of 95 percent or more.
- Windows/Doors: Installing exterior windows and doors designed to retain heat enables you to claim 10% of the cost. Doors and skylights are capped at $500, with windows at $300.
The cost of the equipment qualifies but not the cost of preparation, on-site assembly or installation.
You can claim for any of these in your 2014 tax return if they have been installed in 2012 or 2013. There is a maximum sum claimable of $500. This the total maximum you can claim for all energy-saving installations combined dating from 2006 to 31st December, 2013.
Furthermore, the installations above must be in your main residence. Second homes or rentals do not qualify for this type of energy efficiency tax credits.
Efficient Energy Generation
If you install any of the following four types of energy generation product, you can claim a tax credit of 30% of their cost without any upper limit up until December 31st, 2016:
- Geothermal Heat Pump Systems: Where a series of pipes collect the earth's natural heat underground and transfers it indoors.
- Wind Turbines: These are small residential turbines or windmills that generate electricity.
- Solar Panels: Photovoltaic cells generate electrical energy from the sun's rays. These can be mounted on roofs or on panels situated outdoors in a field, garden or yard.
- Fuel cell installations: These also qualify for a 30% tax credit, but these are limited to $500. The fuel cell assembly must have a minimum capacity of 0.5 KW, and generation efficiency of more than 30%.
Both primary residences and second homes qualify for energy efficiency tax credits for the above four types of installation, but not rental properties. Installations involved in heating pools or hot tubs do not qualify for tax credits for any type of energy efficient equipment.
Many installations must conform to certain Energy Star requirements, such as possessing a specific Energy Star rating. Exterior doors, skylights and windows are examples of these, as are metal or asphalt roofs. Roofing should contain pigmented coatings or cooling granules designed to keep your home cool.
Joint Ownership or Occupancy
Joint owners will each pay for an individual installation according to how much of the home each owns. In such cases, the total claimable is increased from $500 to $1,000. Where neighbors share the cost, each can claim according to the proportion of the total cost paid. Each retains the $500 maximum.
For joint occupancy of a home, where people pay separately for energy efficiency equipment, each will claim the lesser of either what they actually paid, or the percentage of the total sum they paid. Let's say the claim is for $300 for a $3000 installation. Two people respectively paid $1000 and $2,000. What each would claim would be $100 and $200 respectively. Married couples can make just one claim.
How to Claim Your Tax Credits
In order to claim these tax credits, you will require Form 5695 relevant to the year in which you are making the claim. Read the form carefully, since if offers lots of information and advice. Enter the total being claimed on Form 1040, file these forms when making your tax return for the year.
You are only permitted a maximum claim of $500, so if you missed claiming it this year you cannot do so next year. It is not an annual claim. Once you reach your maximum $500, you cannot make another claim.
You will also need a certification statement. This is a statement provided by the equipment supplier certifying that the equipment qualifies for energy efficiency tax credits. You should file this with other documents relating to the claim in case you are asked for them. This would likely only happen if there was a dispute or problem with your claim.