Federal Tax Incentives: 

Non-Business Energy Property Credit

Background 

 

The Non-Business Energy Property Credit provided under I.R.C. § 25C is not a relatively generous tax credit. In general, the credit applies for primary personal home insulation, exterior doors, certain roofing materials, and exterior windows and skylights (approximately 10% of cost up-to $500 as a maximum lifetime limit).​ Pursuant to I.R.C. § 25C(g), this credit applies with respect to any property placed in service (1) after December 31, 2007, and before January 1, 2009, or (2) after December 31, 2020.

To qualify for the credit, qualified residential energy property must also meet certain energy efficiency requirements. See I.R.C. § 25C(d)(2)(B). Moreover, you are generally required to retain written certification from the manufacturer that a product qualified for the tax credit, which is typically found on the manufacturer's website or in the product’s packaging.
 

Also, any amounts provided for by subsidized energy financing can't be used to figure the Non-Business Energy Property Credit. This is financing provided under a federal, state, or local program, the principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.​​

However, if you and a neighbor shared the cost of qualifying property to benefit each of your main homes, both of you can take the nonbusiness energy property credit. You figure your credit on the part of the cost you paid. The limit on the amount of the credit applies to each of you separately.

Regarding married taxpayers with more than one home, if both you and your spouse owned and lived apart in separate main homes, the limit on the amount of the credit applies to each of you separately. If you are filing separate returns, both of you would complete a separate Form 5695 to claim the credit.

Note, you must also in general reduce the cost basis of your home by the dollar amount you claim for the residential energy tax credits. See IRS Publication 523, I.R.C. § 25C(f).

 

In general, as previously mentioned, this credit is limited as follows:

  • A total combined credit limit of $500 for all tax years after 2005. I.R.C. § 25C(b)(1)

    • If the total of any Non-Business Energy Property credits you have taken in previous years (after 2005) is more than $500, you generally can't take the credit.

  • A combined credit limit of $200 for windows for all tax years after 2005. I.R.C. § 25C(b)(2)

  • A credit limit for residential energy property costs for the following I.R.C. § 25C(b)(3):

    • $50 for any advanced main air circulating fan;

    • $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and 

    • $300 for any item of energy efficient building property.

Credit Calculation

In general, I.R.C. § 25C(a) states the Non-Business Energy Property tax credit is equal to the sum of:

  • (1) 10% of the amount paid or incurred for qualified energy efficiency improvements installed during such taxable year; and

    • I.R.C. § 25C(c)(1) states in general, the term ”qualified energy efficiency improvements” means any energy efficient building envelope component , if— 

      • such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer's principal residence (within the meaning of section 121),

      • the original use of such component commences with the taxpayer, and 

      • such component reasonably can be expected to remain in use for at least 5 years.

    • Per I.R.C. § 25C(c)(3), the term “building envelope component” means

      •  any insulation material or system which is specifically and primarily designed to reduce the heat loss or gain of a dwelling unit when installed in or on such dwelling unit,

      • exterior windows (including skylights),

      • ​exterior doors, and

      • ​any metal roof or asphalt roof installed on a dwelling unit, but only if such roof has appropriate pigmented coatings or cooling granules which are specifically and primarily designed to reduce the heat gain of such dwelling unit.

    • Per I.R.C. § 25C(c)(4), the term “dwelling unit” includes a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (part 3280 of title 24, Code of Federal Regulations).

  • (2) Any residential energy property costs paid or incurred during such taxable year

    • I.R.C. § 25C(d)(2)(A)(i) and I.R.C. § 25C(d)(2)(B) defines the term “qualified energy property” as meeting the performance and quality standards, and the certification requirements prescribed by the Secretary by regulations (after consultation with the Secretary of Energy or the Administrator of the Environmental Protection Agency, as appropriate), and in effect at the time of the acquisition of the property, or at the time of the completion of the construction, reconstruction, or erection of the property, and includes—

      • energy-efficient building property,

      • a qualified natural gas, propane, or oil furnace or hot water boiler, or

      • an advanced main air circulating fan.

    • I.R.C. § 25C(d)(1) states in general, the term “residential energy property expenditures” means expenditures made by the taxpayer for qualified energy property which is—

      • installed on or in connection with a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer's principal residence (within the meaning of section 121), and

      • originally placed in service by the taxpayer.

      • Such term includes expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property.

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