The tax news we have received of late is not all positive; at least not for those planning on claiming an energy tax credit in 2011. If you remember correctly, in 2009 Congress passed legislation (ARRA) which allowed taxpayers to claim energy tax credits for 30% of the cost (i.e. furnaces, windows, insulation) or up to $1,500. This same energy tax credit is being reduced for 2011.
Energy Credit Reduced for 2011
In 2011, tax filers can only claim 10% of the qualifying costs (i.e. insulation, energy efficient windows), up to $500 as tax credit on their income tax returns. In other words, by purchasing $500 worth of loose-fill energy insulation, $50 could be claimed as a tax credit. In 2010, the maximum tax credit was 30% of the cost or up to $1,500. Speaking of 2010, if you claim or plan to claim the energy tax credit on your 2010 tax return, you cannot use it again 2011. Therefore, if you qualify for 2010 (purchased energy efficient item(s) and placed in service during 2010), then claim the tax credit on your 2010 return.
Any Other Energy Tax Credit Restrictions for 2011?
Yes. The maximum amount of the credit that you can apply to Energy Star windows is $200 and only $300 can be applied to wood heating systems. Also, furnaces are capped at $200 and must be 95% efficient vs. prior year of only needing to meet the 90% efficiency requirement.
Financial Benefits of Energy Efficient Equipment
In addition to lowering your tax bill via the tax credits, your heating bill will also be reduced. Energy Star estimates that the average homeowner that insulates and seals their homes will be able to lower their annual heating & cooling costs by 20% which is equivalent to 10% of their total annual energy bill. In dollar terms, let’s say your average monthly energy bill is $200, your bill will be reduced by $20 each month or $240 a year.
What are the Qualifying Costs to Improve Energy Efficiency?
Adding Insulation
Energy Efficient Exterior Windows & Doors
Roofs (Metal & Asphalt)
Energy Efficient Heating & Air Conditioning Units
Water Heaters & Stoves
NOT the services for hiring a contractor
Make Sure The Home Improvements Are Energy Star Certified
Note that most of the items that you purchase to make the improvements will need to have an Energy Star certification to qualify for this energy credit.
How do I apply?
Fill out IRS Form 5965 when you submit your 2011 tax return. This is also claimed on line 52 of your 1040.
How Long is the Credit Good For?
The improvements must be placed into service during 2011 to be claimed as a tax credit.
More Energy Tax Credit Questions?
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