Wednesday, December 14, 2011

ENERGY TAX DEDUCTIONS: 2011 Energy Tax Credits: What You Need to Know to Collect

Washington is giving you less green for going green, as the feds reel back the 2011 energy tax credits from a lavish $1,500 to a paltry $500.

2011’s federal energy tax credits of up to $500 for various home improvements are a far cry from what they were last year. But if the limits and other fine print—which we’ll get to—doesn’t dissuade you and you really need to upgrade one or more of the following systems, take advantage of the energy tax credits.

  • Biomass stoves
  • Heating, ventilation, air conditioning
  • Insulation
  • Roofs (metal and asphalt)
  • Water heaters (non-solar)
  • Windows, doors, and skylights
  • Storm windows and doors

The energy tax credits are small, but at least a credit is better than a deduction:
Deductions just reduce your taxable income.

With a credit, you get a dollar-for-dollar reduction in your tax liability: If you get the $500 credit, you pay $500 less in taxes.

Other limits on energy tax credits besides $500 max. Credit only extends to 10% of the cost (not the 30% of yesteryear), so you have to spend $5,000 to get $500.

$500 is a lifetime limit. If you pocketed $500 or more in 2009 and 2010 combined, you’re not entitled to any more money for energy-efficient improvements in the above seven categories. But if you took $300 in the last two years, for example, you can get up to $200 in 2011. With some systems, your cap is even lower than $500.

$500 is the max for all qualified improvements combined. Certain systems capped below $500

No matter how much you spend on some approved items, you’ll never get the $500 credit—though you could combine some of these:

  • System Cap
  • New windows $200 max (and no, not per window—overall)
  • Advanced main air-circulating fan $50 max
  • Qualified natural gas, propane, or oil furnace or hot water boiler $150 max
  • Approved electric and geothermal heat pumps; central air-conditioning systems; and natural gas, propane, or oil water heaters $300 max

And not all products are created equal in the feds’ eyes. Improvements have to meet IRS energy-efficiency standards to qualify for the tax credit. In the case of boilers and furnaces, they have to meet the 95 AFUE standard. has the details.

Tax credits cover installation—sometimes
Rule of thumb: If installation is either particularly difficult or critical to safe functioning, the credit will cover labor. Otherwise, not. (Yes, you’d have to be pretty handy to install your own windows and roof, but the feds put these squarely in the “not covered” category.)

Installation covered for:

  • Biomass stoves
  • HVAC
  • Non-solar water heaters
  • Installation not covered for:
  • Insulation
  • Roofs
  • Windows, doors, and skylights

How to claim the 2011 energy tax credit

  1. Determine if the system you’re considering is eligible for the credits. Go to Energy Star’s website for detailed descriptions of what’s covered; then talk to your vendor.
  2. Save system receipts and manufacturer certifications. You’ll need them if the IRS asks for proof.
  3. File IRS Form 5695 with the rest of your tax forms in 2012.
  4. This article provides general information about tax laws and consequences, but isn’t intended to be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice, and remember that tax laws may vary by jurisdiction.

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