Obtaining certification for energy-efficient home improvements for tax breaks

If you make energy-efficient improvements to your home in 2010, you may be eligible for a federal tax credit that can help lower your tax bill. Two of the main credits for "green" improvements made to a home are the nonbusiness energy property credit and the residential energy efficient property credit. If you qualify for a tax credit, you will need to retain documentation that your energy efficient improvements are eligible for the tax credits you claim. You will need to certify that the property you purchase to improve your home qualifies for the credit - you don't want to purchase items with the intention of claiming a credit only to find out later that the items do not qualify.

Energy credits

The Code Sec. 25C nonbusiness energy property credit is a nonrefundable tax credit for qualified nonbusiness (residential) energy property. The credit amount is 30 percent of the sum of expenses for qualified energy efficiency improvements and qualified energy property for 2009 and 2010 property. The credit is limited to a lifetime maximum credit of $1,500 for 2009 and 2010 property.

The credit is available for a variety of energy property. Among the residential energy property that may qualify for the credit are:

- Furnaces and boilers;
- Water heaters (non-solar);
- Central air conditioning;
- Insulation;
- Exterior windows, doors and skylights; and
- Certain roofing.

There are also a number of household items that are not covered by the tax credit, including:

- Ceiling fans;
- Washers & dryers;
- Refrigerators;
- TVs;
- Toilets;
- Dehumidifiers;
- Dishwashers;
- Lighting (for example, light fixtures, compact fluorescent light bulbs, and LEDs) ;
- Ovens / Ranges; and - Programmable thermostats.

A related credit - the Code Sec. 25D residential energy efficient property credit - provides a nonrefundable tax credit for qualified residential energy efficiency property placed in service before 2017. Generally, the credit is 30 percent of the cost of qualified residential energy efficiency property with no upper limit except for qualified fuel cell property.

The residential energy efficient property credit is also available for a variety of energy property. They include solar electric property, solar water heating property, geothermal heat pumps, small wind energy systems, and fuel cell property. The credit generally encompasses labor costs applicable to on-site preparation.

Certifying your purchases

 Not all energy efficient improvements are eligible for a tax credit. For example, ENERGY STAR distinguishes energy efficient products which may be eligible for a tax credit; but, many individuals may not be aware that not all ENERGY STAR products qualify for a tax credit. Therefore, you should check the manufacturer's tax credit certification statement (discussed further below) before purchasing or installing any products in your home.

To claim a credit for products "placed in service in 2010" (that is, installed), homeowners must complete Form 5695, Residential Energy Efficient Property Credit, and submit the form with their Form 1040 when they file their 2010 taxes by April 17, 2011 (since April 15 falls on a Friday in 2011). Homeowners do not need to provide the IRS with any other documentation when filing their return.

However, you should keep a copy of the Manufacturer's Certification Certificate, any labels from the products you purchased showing they meet certain energy efficient standards, and your sales receipts. A Manufacturer's Certification Statement is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. Manufacturers generally provide these certifications on their website or with the product packaging. Homeowners can generally rely on these statements for certification. The certification does not need to be attached to your return, however.

Certified public accountants and consulting firm located in Troy, Michigan. This data is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional advice.