In recent years, tax policy has been coupled with environmental policy. In an effort to promote the more effective use of resources, certain credit provisions are enhanced to encourage taxpayers to engage in energy improvement projects. Although the energy efficiency home improvement credits were extended through 2011 as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312, Dec. 17, 2010), those extensions were approved at significantly reduced levels. The general public and the building and remodeling industry have both expressed concerns that the modified provisions will not encourage the same energy conscious behavior as could previously be anticipated. However, potential tax benefits may still be attractive for some taxpayers in the 2011 tax year.
Credits available to individual taxpayers cross a range of tax provisions, and vary in their specifics. Energy efficiency credits are available for a variety of products, including certain appliances. Credits are also available for substantial residential modifications, including energy efficient heating and cooling mechanisms, and exterior modifications to residences. For the 2011 tax year, energy efficiency credits are still available for most of the same products for which they were available in 2010.
Products that are credit worthy under IRC Section 25C include energy efficient doors and windows; water heaters; insulation that meets IECC requirements; HVAC components; biomass stoves; and metal and asphalt roofs.
Credits Applied in 2009 and 2010
For products purchased and installed in 2009 and 2010, taxpayers could receive a credit of 30 percent of qualifying expenses, up to a maximum of $1,500. The credit could be taken for energy-efficient windows, insulation, doors (including sliding glass doors, garage doors, storm doors and storm windows), roofs (including metal and asphalt roofing), heating and cooling equipment (HVAC, central air conditioning units, air source heat pumps, furnaces, boilers), water heaters, and biomass stoves. One upside note is that taxpayers claiming a credit for skylights or exterior windows or doors can rely on the Energy Star certification when determining whether the modification meets the credit standards.
Changes for 2011
Taxpayers should be aware of these 2011 energy credit modifications:
For home improvement projects completed in 2011, the credit is far more limited than it was during 2010. The tax credit on home improvement projects is limited to 10 percent of the installed cost of qualifying equipment, and $500 per home. Homeowners will be able to claim only $200 for new windows, $150 for new furnaces (which must be 95% efficient), and $300 for new water heaters on their 2011 returns. In addition, the $500 maximum is a cumulative amount that applies for amounts claimed across several years. Thus, taxpayers who received credits amounting to $500 in tax years between 2005 and 2010 are not eligible for any credit in 2011.
For additional insight, see:
LexisNexis Tax Advisor -- Federal Code § 25C
LexisNexis Tax Advisor -- Federal Topical § 1F:8.09
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