If you make improvements to your home to make it more energy efficient you can use IRS Form 5695 to claim a tax credit for doing so. The form is called Residential Energy Credits. The improvements have to have been implemented during the tax year in order to claim the credit. Here’s how it works.
What Types of Home Improvements Count as Energy Efficient?
- If you install solar panels to power your electric needs, this may qualify for Residential Energy Credits.
- If you install a system where you get your heat from the earth, you may qualify for the credit. This is called geothermal heat pump.
- If you install a home wind turbine on your property and it powers your home, you may qualify.
- If you install a solar energy system that heats your hot water then this may also qualify.
How to Make Sure Your Improvements Qualify
A solar water heater qualifies if at least half the energy comes from the sun. You can have someone from the Solar Rating Certification Corporation come and certify your apparatus.
For geothermal energy, any system that uses air or water from the ground to heat or cool your home qualifies. This works on the principal that earth temperatures hover always at around 55 degrees, which will heat homes in cold areas and cool homes in hot areas. The equipment you buy must simply have the Energy Star stamp. That means it complies with certain energy standards.
And, if you buy energy efficient exterior doors, windows, skylights, appliances, or roof, they may also qualify.
Qualified fuel cell improvements use some sort of fuel (biodeisel, etc) and converts it into electricity. Usually batteries are involved- lots of them. There are efficiency and capacity standards for this one. It can’t be a rinky-dink system that doesn’t do much, in other words.
Part 1 vs Part 2: 2 Types of Energy Credits
Qualified fuel cell improvements must be on your main home, unlike the above improvements. Or at least we think that’s the case. In one section of the IRS Form 5695 Instructions it states that. But later in the instructions is says that you cannot claim the nonbusiness property credit if the improvements were not to your main home. Just can’t seem to make sense of it. They seem to be distinguishing between two types of energy credits here:
- Part 1: Residential energy Efficient Property Credit
- Part 2: Nonbusiness Energy Property Credit
I guess the main home qualification depends on whether you are claiming energy credits in Part 1 or Part 2. Here are the differences I can see between the two parts of Form 5695:
- Part 1: can be used for homes under construction (Part 2 can not)
- Part 1 is Energy Efficient Property
- Part 2 is Energy Property. What’s the difference? The property doesn’t have to be installed in your main home.
Things That Don’t Qualify
Heating your swimming pool with energy efficient technology does not qualify you for the Energy Tax Credit. Same for a hot tub.