This nonrefundable energy tax credit may help you pay for qualified residential alternative energy equipment, such as geothermal heat pumps, solar hot water heaters, and wind turbines. The credit was expanded by The American Recovery and Reinvestment Act in early 2009. A few of the previously imposed maximum amounts were eliminated and it now provides for a credit equal to 30% of the cost of qualified property. The credit is usually equal to 30% of the cost of the equipment and may include the cost of the labor used to install it. For 2009, there is generally no cap on this credit and it\’s available for equipment placed into service through 2016. Regrettably, it\’s a nonrefundable credit, which is an important, because in this case, your credit is limited to your tax liability.
Credit basics The credit is available for property placed in service prior to January 1, 2017 and the credit is generally is equal to 30% of certain of solar electricity equipment, solar water heaters, fuel cell plants, qualified small wind energy property and qualified geothermal heat pump(eligible equipment).
Qualifying property 30% of the following qualifying expenditures can qualify for the credit:
o Qualified solar electric property costs for expenses incurred for property that uses solar energy to produce electricity for use in your home. These costs may be used to purchase a solar panel or other property that may be installed on a roof. These costs do not have to be incurred for your main home.
o Qualified solar water heating property costs pertain to expenses incurred to heat water for use in a dwelling located in the United States and used as a residence if at least half of the energy is derived from the sun. An example is solar panels. In this case, the home does not have to be the taxpayer\’s main home.
o Qualified small wind energy property costs pertain to expenses incurred for property that uses a wind turbine to generate electricity for use in the taxpayer\’s home. For this type of expenditure, the home does not have to be the taxpayer\’s main home.
o Qualified geothermal heat pump property costs are costs for property installed on or for a taxpayer\’s home. The home does not have to be the taxpayer\’s main home. The equipment that uses the ground or groundwater as thermal energy source to heat or cool the taxpayer\’s home is called a geothermal heat pump.
o A qualified fuel cell power plant that is installed in your main home, must contain a system consisting of a fuel cell stack assembly and associate components. This equipment must be able to convert fuel into electricity.
Labor costs resulting from on-site preparation, assembly, or original installation of the residential energy efficient property and piping or wiring that connects the eligible property to the home may also qualify for the credit.
Basic limitations of the credit With the exception of the $500 limitation on qualified fuel cell property there is no limit to the 30% credit based upon the eligible equipment.
Since this credit existed in the past, the opportunity may exist that some retail establishments may not give you the correct certification statement that is needed for the 2009 credit. A word of caution, since certain slow-moving energy-efficient products from a prior year may remain unsold, the equipment may be aggressively marketed at reduced prices. Therefore, it\’s important that you get a 2009 certification from the manufacturer. This is a requisite to use the credit on your 2009 tax return.
The amount of the residential alternative energy credit that can be claimed by the taxpayer cannot exceed the taxpayer\’s regular income tax liability(reduced by any foreign tax credit) and the alternative minimum tax liability over the sum of certain nonrefundable credits. This limitation changes for 2010 and reference should be made to the applicable IRS rules. Special pro-ration rules apply in the case of jointly owned property.
In order to obtain the credit, a taxpayer must complete Form 5695. Before completing Form 5695, taxpayers need to calculate any credit for the elderly or the disabled, or other motor vehicle related credits. The credit is limited to the taxpayer\’s tax liability and the credit cannot be utilized if you have no tax liability. Also, the credit is not available to 1040EZ and 1040A tax filers. Therefore, if you otherwise would qualify for to use Forms 1040EZ and 1040A, you now will have to file a regular Form 1040.
It is important to ask your accountant to assist you to determine the eligible credit carry forward and whether or not you qualify for the 30% residential energy-efficient property credit. This credit is not as straight forward as some of the other credits and for more information please refer to IRS Notice 2009-41.This article is not intended to be legal or accounting advice. Tax laws are complex, change constantly and each situation is unique. The reader is advised to do his or her own due diligence and consult competent professionals in these areas.
Why not learn more about how we can help you determine if you are eligible for the alternative energy equipment credit and other new IRS tax credits and about our reasonably priced paperless and internet based approach to tax preparation at affordable prices. Sandor(Sandy) E. Lenner,CPA-MBA has provided accounting and business services for over 35 years and works part-time at his wife\’s CPA firm .