Do Your Home Improvements Qualify for Residential Energy Tax Credits?
Tax Credits Available for Energy-Efficient Home Improvements
Homeowners may qualify for a federal tax credit for making improvements or installing appliances designed to boost the energy-efficiency of a home.
There are several tax credits for residential energy efficiency that have been renewed. These tax credits are available for energy efficient purchases made in 2016, as well as retroactive to purchases made in 2015. Solar panels added to your home are good through 2019, and are then reduced each year until end-of-year of 2021.
What Are EnergyStar Products?
EnergyStar products, which boast 30 percent less energy usage, are eligible for tax credits.
Initial credits that have been renewed were for purchase and installation of qualifying energy-efficient products in your main home in the years 2006, 2007, and 2009 through 2014. The requirements for the residential energy tax credits vary for each year that the credit is available.
Home Improvements (aka Nonbusiness Energy Property Credit)
Homeowners may be eligible for the nonbusiness energy property credit. This credit is worth 10 percent of the purchase price of qualified energy-efficient products installed at the taxpayer's main residence. Qualified energy-efficient products include:
- Exterior windows and skylights
- Exterior doors
- Metal or asphalt roof with pigmented coatings or cooling granules that are designed to reduce heat gain
- Water heaters
- Heat pumps
- Central air conditioners
- Hot water boilers
- Advanced main air circulating fans
You can find a list of qualifying home improvement equipment on the EnergyStar web site.
Improvements Restricted to 'Main Home'
The tax credit for nonbusiness energy property is restricted to improvements to and appliances installed at a primary residence.
Improvements made on rental homes, second homes, or vacation property are not eligible for this tax credit.
Solar Panels, Fuel Cell Power Plants, Geothermal and Wind (Residential Energy Efficient Property Credit)
The following types of equipment are eligible for a 30 percent tax credit with no maximum tax credit amount through December 31, 2016:
- Solar panels,
- Solar-powered water heaters,
- Geothermal heat pumps,
- Small wind energy systems, and
- Fuel cells.
You can install "solar panels, solar water heating equipment, or a fuel cell power plant to their homes in the United States. In general, a qualified fuel cell power plant converts a fuel into electricity using electrochemical means, has an electricity–only generation efficiency of more than 30 percent and generates at least 0.5 kilowatts of electricity," the IRS explained in IR-2006-34. The tax credit amount is 30% of the cost, including any labor costs for installing the equipment. The tax credit is available for equipment installed at the taxpayer's main residence.
The residential energy efficient property credit is reported on Form 5695, Part I.
Energy Tax Credits Reduce Your Cost Basis
You must reduce the cost basis of your main home by the dollar amount you claim for the residential energy tax credits.
The IRS explains in Publication 523: "Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures."
Energy Credits Tax Forms and Instructions
- IRS Form 5695 (PDF, includes instructions)
- Summary of Tax Incentives from the Energy Star Web site