The residential energy credit is a non-refundable tax credit available for individuals who make energy-conscious purchases to improve the energy efficiency of their home. The credit is available for purchases made after tax year 2005.

• Each item must meet or exceed criteria established by the 2000 International Energy Conservation code.
• Each item must be installed in your primary home. A primary home is the home where you live most of the time, including a house, houseboat, mobile home, condominium, manufactured home, or cooperative apartment.
• The expenses must be paid or incurred in the current tax year.

• Insulation material or systems to reduce heat loss or gain
• Exterior windows, including skylights
• Exterior doors
• Metal roofing
• Residential energy property costs, including labor costs to the on-site preparation, assembly, or original installation of the property.
  • Natural gas, propane, or oil furnaces
  • Hot-water boilers
  • Main air circulating fans used in natural gas, propane, or oil furnaces
  • Electric heat pump water heaters
  • Natural gas, propane, or oil water heaters
  • Electric heat pumps
  • Geothermal heat pumps
  • Central air conditioners        

• The credit is equal to 10% of the amount paid for qualified improvements installed during the current tax year.
• The credit has a lifetime limit of $500 for all improvements in all tax years.
• The amount of credit for certain expenses is limited (for all tax years) by the type of item:
  • Advanced main air circulating fan – $50
  • Natural gas, propane, or oil furnace or hot-water boiler – $150
  • Windows – $200
  • Energy-efficient building property – $300

Property and installation costs must be for use in your home located in the United States. 

• Solar electric property and installation costs, if the property is used to generate electricity for your home and is installed as the roof or a portion of the roof of your home.
• Solar water-heating property and installation costs, if the property is used to heat water for your home and at least half of the energy used by the property is generated from the sun. In addition, the property must be certified by the Solar Rating Certification Corporation or a comparable government-endorsed company.
• Fuel cell property and installation costs, if the property is used to generate electricity for your home. The property must have nameplate capacity of at least .5 kilowatt of electricity using electrochemical process and electricity-only generation efficiency of greater than 30%.    

• The credit is equal to 30% of the amount paid for properties installed during the current tax year.
• The amount of credit for certain expenses is limited:
  • Fuel cell property – $500 for each .5 kilowatt capacity
  • Solar electric property – $2,000
  • Solar water-heating property – $2,000

To claim the credit, complete Form 5695 and attach the form to your Form 1040 or Form 1040A.