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The Latest on Residential Energy Credits – What Changed?

Sally Ip | Staff Accountant

Residential Energy Credits have been available to taxpayers who upgrade their homes to improve energy efficiency or make use of renewable energy. The Consolidated Appropriations Act, signed in December 2015, retroactively renewed these tax credits which originally expired at the year end of 2014. Therefore, currently on your 2016 federal income tax return, you will still be able to claim these energy credits on the Form 5695. However, both credits in the Form 5695 —“the nonbusiness energy property” or “Part II” credit and “the residential energy efficient property” or “Part I” credit will be expiring again on December 31, 2016 (except for qualified solar energy property under Part I which is scheduled to expire at the end of 2021).

“Part II” credit: Generally speaking, qualified energy efficiency improvements under nonbusiness energy property credit include insulation materials, exterior windows (including skylights) and doors, and certain metal or asphalt roofs. You can claim a tax credit for 10% of the cost of these improvements up to $500. There is also specific tax credit amount range from $50 to $300 for qualified residential energy property expenditures like that of electric heat pump water heaters, central air conditioners, qualified natural gas, propane, or oil furnaces or hot water boilers, advanced main air circulating fans, air source heat pumps, and biomass stoves. However, this is the maximum tax credit for all this type of improvements made since 2005. If a taxpayer has already claimed $500 or more of this tax credit from 2011 to 2015, any purchases made in 2016 will be ineligible for a tax credit.

“Part I” credit: This is a 30% tax credit of expenditure with no upper limit on qualified residential fuel cell property, geothermal heat pumps, small wind energy property and solar energy property for both existing and new construction of principal. This credit will also be expiring on December 31, 2016 except for the part on qualified solar energy system like solar water electric and heating property, which will be available through December 31, 2019, and then the credit will decrease to 26% for 2020, then 22% for 2021, and expires on December 31, 2021.

How Does This Affect You? We are unsure if the government will extend or retroactively renew these expiring energy credits as in 2015. However, you can definitely still make good use of the solar energy property part of the credit for the next few years if you are interested in “Going Green”. Be careful though for only expenditures on qualified energy efficient improvements prescribed by the IRS will qualify. To learn more about what products may qualify for the tax credit, refer to the Energy Star website.

About the Author:  Sally Ip is a Staff Accountant in EFPR Group’s Tax & Business Services Department, specializing in International Tax.  Sally offers a variety of tax and accounting services to clients including individual, partnership, and corporate tax preparation with a focus on international tax.

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