The Internal Revenue Service (IRS) of the United States grants special tax credits when you conduct energy efficiency improvements to your home. However, this tax credit is limited to a maximum of 30% of the costs that you have spent for energy efficiency equipment and its installation. The upper limit is $2,000 for solar water heating or solar electric property, $2,000 for installing of geothermal heat pumps, $4,000 for wind-operated electrical generation with $500 for capacity of every half kilowatt, and $500 for fuel cell capacity of each half kilowatt. The residential energy credits are available only for properties that improve efficiency of residential energy and this would be purely a credit for nonbusiness properties.
Procedures for Submission of IRS Form 5695
- IRS Form 5695 is for listing of these improvements and adding up the total credit due to you. Line 15 of this form is for the total cost of installing solar electric property. You should enter the cost of installing solar water heating property in Line 16 . Line 17 is for the total cost of installation of wind energy property. The total cost of installation of geothermal heat pumps goes into Line 18. The total of Line 15 to Line 18 would be on Line 19. Line 20 would be the multiplication of the amount in Line 19 by 0.30.
- You should enter the cost of installing fuel cell property in Line 22, which is multiplied by 0.30 and entered in Line 23. Line 24 contains the installed kilowatt capacity multiplied by $1,000. Line 25 would contain the smaller of the two amounts of Line 22 or Line 24.
- Line 27 of IRS Form 5695 would consist of the total of Lines 20, 25, and 26.
- You should enter in Line 31 the amount of Line 27 or 30, whichever is smaller and include that amount in Line 52 of your IRS Form 1040. In case the amount of Line 31 is lesser than that of Line 27, you could subtract the amount of Line 27 from that of Line 31 and enter it in Line 32. IRA allows you to carry forward this balance credit amount to the taxes of next year.
Rules and Regulations for Installation of Energy Efficiency Improvement Property
IRA has specified several strict regulations for availing energy efficiency property credit . The energy efficiency improvements that qualify for the credit should be for personal use at your home and the components should last for a minimum period of 5 years. The credit does not include labor costs but is available only for property costs. The system and/or the insulation materials designed primarily to reduce heat loss or increase heat gain of your home should meet the criteria prescribed by IECC 2009.
The exterior doors should either meet or exceed standard requirements of Energy Star programs. The exterior windows as well as any skylights should also meet or exceed Energy Star requirements. Similarly, all asphalt or metal roofs that you install to improve the energy efficiency of your home should have appropriate cooling granules or pigmented coatings that are conducive to and designed for reduction of heat gain in your home. These should also meet or exceed requirements of Energy Star programs.
IRA also allows you to claim the total of credits during a fiscal year, even if you have used more than one home as your residence during that year and have made improvements for energy efficiency in those homes. IRA defines a home for purposes of claiming grants through IRS Form 5695 as any house, mobile home, condominium, houseboat, cooperative apartment, or manufactured home conforming to Federal Manufactured Home Construction and Safety Standards.