Energy Incentives for Individuals: Residential Property Updated Questions and Answers
Q. What improvements qualify for the residential energy property credit for homeowners?
A. In 2016, an individual may claim a credit for (1) 10 percent of the cost of qualified energy efficiency improvements and (2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during the taxable year (subject to the overall credit limit of $500).
Qualified energy efficiency improvements include the following qualifying products:
- Energy-efficient exterior windows, doors and skylights
- Roofs (metal and asphalt) and roof products
Residential energy property expenditures include the following qualifying products:
- Energy-efficient heating and air conditioning systems
- Water heaters (natural gas, propane or oil)
- Biomass stoves
Please note that qualifying property must meet the applicable standards in the law.
The residential energy property credit, which expired at the end of December 2014, was extended for two years through December 2016 by the Protecting Americans from Tax Hikes Act of 2015. The credit had previously been extended by legislation several times. See Notice 2013-70 for more information on this credit as well as the credit for alternative energy equipment. However, please note that the law has been updated since this notice was released.
Q. Who qualifies to claim a residential energy property credit? Are there limitations?
A. You may be able to take these credits if you made energy saving improvements to your principal residence during the taxable year. In 2016, the residential energy property credit is limited to an overall lifetime credit limit of $500 ($200 lifetime limit for windows). There are also other individual credit limitations:
- $50 for any advanced main air circulating fan
- $150 for any qualified natural gas, propane, or oil furnace or hot water boiler
- $300 for any item of energy-efficient building property
The residential energy property credit is nonrefundable. A nonrefundable tax credit allows taxpayers to lower their tax liability to zero, but not below zero.
Q. Are there incentives for making your home energy efficient by installing alternative energy equipment?
A. Yes, the residential energy efficient property credit allows for a credit equal to 30 percent of the cost of qualified property. Qualifying properties are solar electric property, solar water heaters, geothermal heat pumps, small wind turbines and fuel cell property. Only fuel cell property is subject to a limitation, which is $500 with respect to each half kilowatt of capacity of the qualified fuel cell property. Generally, this credit for alternative energy equipment terminates for property placed in service after Dec. 31, 2016. The credit for solar electric property and solar water heating property, however, is available for property placed in service through Dec. 31, 2021, based on an applicable percentage. The applicable percentages are:
(1) In the case of property placed in service after Dec. 31, 2016, and before Jan. 1, 2020, 30 percent.
(2) In the case of property placed in service after Dec. 31, 2019, and before Jan. 1, 2021, 26 percent.
(3) In the case of property placed in service after Dec. 31, 2020, and before Jan. 1, 2022, 22 percent.