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Residential Energy Tax Credits

Tax Credits for Energy Efficient Home Improvements

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Revised: 4/01/2013.

Homeowners may qualify for a federal tax credit for making improvements or installing appliances design to boost the energy-efficiency of a home.

Basic Requirements:

You purchase and install qualifying energy-efficient property in your main home in the years 2006, 2007, 2009, 2010, 2011, 2012 and 2013. You must purchase new energy-efficient equipment, and the equipment must be expected to remain installed for at least five years.

The requirements for the residential energy tax credits vary for each year that the credit is available. The following are the requirements for the years 2012 and 2013. (For earlier years, refer to the Instructions for Form 5695 for the year in question.)

Home Improvements (aka Nonbusiness Energy Property Credit)

For the years 2012 and 2013, homeowners may be eligible for the nonbusiness energy property credit. This credit is worth 10% of the purchase price of qualified energy-efficient products installed at the taxpayer's main residence. Qualified energy-efficient products include:
  • Insulation,
  • Exterior windows and skylights,
  • Exterior doors,
  • Metal or asphalt roof with pigmented coatings or cooling granules that are designed to reduce heat gain,
  • Water heaters,
  • Heat pumps,
  • Central air conditioners,
  • Furnaces
  • Hot water boilers
  • Advanced main air circulating fans,
You can find a nice list of qualifying home improvement equipment from the EnergyStar web site.

The nonbusiness energy property credit is limited to a total of $500 over all years after 2005. Furthermore, the tax credit for windows is limited to a total of $200 for all years after 2005.

The nonbusiness energy property credit is reported on Form 5695, Part II.

Improvements Restricted to 'Main Home'
The tax credit for nonbusiness energy property is restricted to improvements to and appliances installed at a primary residence. Improvements made on rental homes, second homes, or vacation property are not eligible for this tax credit.

Solar Panels, Fuel Cell Power Plants, Geothermal and Wind (aka Residential Energy Efficient Property Credit)

The following types of equipment are eligible for a 30% tax credit with no maximum tax credit amount through December 31, 2016:
  • Solar panels,
  • Solar-powered water heaters,
  • Geothermal heat pumps,
  • Small wind energy systems, and
  • Fuel cells.
You can install "solar panels, solar water heating equipment, or a fuel cell power plant to their homes in the United States. In general, a qualified fuel cell power plant converts a fuel into electricity using electrochemical means, has an electricity–only generation efficiency of more than 30 percent and generates at least 0.5 kilowatts of electricity," the IRS explained in IR-2006-34. The tax credit amount is 30% of the cost, including any labor costs for installing the equipment. The tax credit is available for equipment installed at the taxpayer's main residence.

The residential energy efficient property credit is reported on Form 5695, Part I.

Energy Tax Credits Reduce Your Cost Basis

You must reduce the cost basis of your main home by the dollar amount you claim for the residential energy tax credits. The IRS explains in Publication 553: "You must reduce the basis of your home by the amount of credit allowed." The basic formula for determining the cost basis of your home is provided in Selling Your Home.

Energy Credits Tax Forms and Instructions

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