The facts about the Residential Energy Property Credit: What changed and how does it affect you?
BY MICHAEL R. DOODY, CPA AND JUSTIN A. SANSONE
If you have turned on the television recently you more than likely have seen a commercial from your local heating and cooling company advertising your entitlement to a $1,500 tax credit for residential energy efficiency improvements. What is not mentioned is the fact that you need to spend at least $5,000 out-of-pocket and meet specific requirements as prescribed by the Internal Revenue Code in order to claim the $1,500 tax credit.
The goal of this article is to further educate the consumer on the pros and cons of the Residential Energy Property Credit.
What Changed?
In 2009, President Obama signed into law The America Recovery and Reinvestment Act. Included in the new law were updates to the old Residential Energy Property Credit that had expired as of December 31, 2007. The new law extends the application of the credit through 2010. The following is a list of additional changes:
Ø Increased the tax credit from 10% to 30% of the expenditures associated with qualified energy efficiency improvements and residential energy property.
o Generally speaking, “qualified energy efficiency improvements” include insulation materials, exterior windows (including skylights) and doors, and certain metal or asphalt roofs.
o “Residential energy property expenditures” include expenditures for electric heat pump water heaters, central air conditioners, qualified natural gas, propane, or oil furnaces or hot water boilers, advanced main air circulating fans, and stoves that burn biomass fuel to heat your dwelling.
Ø Increases the cap on the credit from a total of $500 to a maximum of $1,500 over two years (2009 and 2010).
Ø Modified the efficiency standards.
How Does This Affect You?
Be careful of advertising that looks too good to be true. Not all expenditures to enhance the efficiency of your home will necessarily qualify for the tax credit. Only those energy efficient improvements prescribed by the IRS will qualify. For example, in order to qualify a hot water heater must meet an Energy Factor requirement of .82 or a thermal efficiency of at least 90%. Energy Factor (EF) refers to the ratio of useful energy output from a water heater to the total amount of energy delivered to the water heater. The higher the Energy Factor, the more efficient the hot water heater. Currently there are no residential storage tank hot water heaters that meet the .82 Energy Factor and thus qualify for the tax credit. To learn more about what products may qualify for the tax credit, refer to the Energy Star website at www.energystar.gov.