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Residential Energy Credits

The nonrefundable Residential Energy Credits are available for individuals who make energy-conscious improvements to the energy efficiency of their home. There are two credits:

  • The Nonbusiness Energy Property Credit, claimed on Part 1 of Form 5695, is for physical improvements to the home building itself. This covers energy-efficient insulation, doors, windows, heaters, air conditioners and the like.
  • The Residential Energy-Efficient Property Credit, claimed on Part 2 of Form 5695, is for investments in alternative energy, such as solar, wind, geothermal and fuel cells.

Part I - Nonbusiness Energy Property Credit

The credit has a lifetime limit of $500, of which only $200 can be for windows. Also, only 10% of eligible energy-saving home improvements installed during the tax year qualify for the credit, but are still subject to other stated maximums. There are also other limits for certain devices, listed below. Finally, the $500 credit limit is reduced by amounts you received for the credit in 2006–2007 and 2009–2012 (there was no credit in 2008).

Requirements to Claim Credit

  • Windows and doors must now meet Energy Star specifications.
  • Woodstoves must have a thermal efficiency of at least 75%.
  • Natural gas, propane or oil furnaces or hot water boilers must have an annual fuel utilization efficiency of at least 95.
  • 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.
  • Purchases made with subsidized energy financing are no longer eligible for the credit.

Qualifying Items / Expenses

  • Insulation material or systems to reduce heat loss or gain
  • Exterior windows, including skylights ($200 maximum credit)
  • Exterior doors
  • Roofing designed to reduce heat gain
  • Residential energy property, including labor costs for the on-site preparation, assembly or original installation of the property
    • Natural gas, propane or oil furnaces - $150 maximum credit
    • Hot-water boilers - $150 maximum credit
    • Main air circulating fans used in natural gas, propane or oil furnaces - $50 maximum credit
    • Electric heat pump water heaters - $300 maximum credit
    • Natural gas, propane or oil water heaters - $300 maximum credit
    • Electric heat pumps - $300 maximum credit
    • Geothermal heat pumps - $300 maximum credit
    • Central air conditioners - $300 maximum credit

Part II - Residential Energy-Efficient Property Credit

A credit is also available for investments in alternative energy for your home. The Residential Energy-Efficient Property Credit also equals 30% of qualifying improvement costs, with no dollar limit except for fuel cells. Installation is usually included.

Requirements to Claim Credit

Property and installation costs must be for use in your home located in the United States. Except for fuel cells, the home does not have to be your main home.

Qualifying Items

  • Solar panels
  • Solar water-heaters
  • Wind turbines
  • Geothermal heat pumps
  • Fuel cells, with restrictions:
    • The fuel cell must be installed on your main home in the U.S.
    • The fuel cell must have a capacity of at least .5 kilowatt.
    • The credit cannot exceed $500 for each .5 kilowatt generated.

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