Okay, so maybe Walt Whitman didn’t write it exactly like that. It went more along the lines of “and shadows will fall behind you.” I slightly adapted Whitman’s famous quote in order to demonstrate the power of energy credits! (I bet you didn’t see that one coming) Purchasing energy-efficient household items is a great way to earn credits on your tax return. My parents installed a huge (and expensive) amount of solar on their property in 2014. The main reason behind this was to drop their energy bill to virtually $0 per month during summer months when they must irrigate their property. So I called my mom the other day and asked her how much they spent. The first thing I thought when hearing that was, “wow, that is going to be an awesome tax credit!”
There are two different energy credits you can take. The first one we’ll discuss is the Non-Business Energy Property Credit. This credit was supposed to expire on December 31, 2013, but it has been extended so you may still be able to use this credit. Some examples of energy-efficient property are windows, water heaters, certain roofing, insulation, and a number of other items. As always with tax credits, there are a list of ifs and buts.
Main Home: This credit can be taken for energy-efficient property installed in you main home. You cannot take this credit if you did not install the energy-efficient improvements in what you consider to be your main home. The credit can also only be taken for property installed in or on existing homes, not homes being constructed.
Qualified Energy Improvements: The property must be qualified energy-efficient property to be eligible for the credit. To see if your purchases qualify, your statement from the supplier should tell you, or you can find the information in the product details.
Lifetime Limitation: If you have taken a non-business energy property credit in any year(s) after 2005, and that credit you received totals $500, you cannot take the energy credit. For example, if you received a $200 credit in 2007 and a $300 credit in 2010, then you would not be eligible to take the credit in the current year. Also, this limitation applies specifically to windows. If you received a credit of $200 for installing energy-efficient windows in a year(s) after 2005, you cannot take a credit for windows again.
Percent Limitation: If, after reviewing your prior credits, you are eligible to take a credit, your credit will be limited to 10% of the cost of your energy-efficient property. You cannot include installation costs.
The second energy credit you can take is the Residential Energy Efficient Property Credit. This property includes larger ticket items such as solar electric, solar water heating, small wind energy, geothermal heat pump, and fuel cell. Unlike the first credit we discussed, this credit can be taken even if the energy-efficient property you installed was not installed for your main home.
Limitation: You can receive a credit of up to 30% of the cost of your energy-efficient property. This credit can also be limited due to the amount of other credits you are taking that year. If your credit is limited in the current year, you can carry the credit over to 2015.
Cost: For this credit, the labor included in prepping, assembling, and installing the energy-efficient property can be added into the cost. You must also reduce the cost basis for which you can take a credit by any subsidies you received from a public utility for the purchase and installation of you energy-efficient property.
Basis Adjustment: When you take this credit, you must reduce the basis of your property by the amount of the credit you receive. This will generally not affect you until you sell your home. Just be sure to keep records of your basis and any credits taken.
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