Residential Energy Tax Credit 2011: You May Not Receive As Much Green As You Think!

Now that you finally paid off that nagging credit card bill with your 2010 tax refund, you’re anxious to purchase new energy efficient windows and lower your 2011 taxes with the Residential Energy Tax Credit.  Going Green is socially responsible, but before you break the bank make sure you understand how changes in the law will impact your taxes.  Although it is still available, effective January 1, 2011, the credit for energy-saving home improvements was decreased.  There are also many other new rules depending on what appliance you install.

What Is The Residential Energy Tax Credit?

It’s a tax credit given by the IRS to reward homeowners for making eligible energy-saving improvements to their principal residences.   A tax credit directly increases your refund or reduces your tax liability. A principal residence is a home that you own and live in most of the time.

Home improvements eligible for the credit are:

•    Biomass stoves, heating, ventilating, air conditioning, water heaters, and installation costs for these items.

•    The costs of windows, skylights, energy-efficient doors, insulation, and certain roofs also qualify for the credit.

Another related credit available to taxpayers is the Residential Energy Efficient Property Credit.  This tax credit remains unchanged for 2011 and covers qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.

How Did the Residential Energy Tax Credit Change in 2011?

In 2010, the Residential Energy Tax Credit was 30% of the cost of eligible energy saving home improvements up to $1,500, but now the credit is considerably lower as follows:

•    10% up to $500 for insulation, roofs, and doors

•    Windows capped at $200, but must meet ENERGY STAR qualifications

•    Furnace and boilers capped at $150

•    $50 for advanced main air circulating fan

•    $300 for air conditioners, air source heat pumps, water heaters, and Biomass stoves

•    $500 lifetime limit. If you received over $500 in these tax credits from 2006-2010, you are not eligible for anything more.

Most Common Reasons You May Not Receive the Tax Credit You’re Expecting

1.    Appliances such as refrigerators, dishwashers, washers, and dryers are not eligible for the credit even if they carry the Energy Star label.  Your state may have a rebate program for these types of appliances.  Check with your individual state online.

2.    The energy credit is a non-refundable credit.  Non-refundable tax credits are tax credits that cannot be more than your tax liability.  For example, if your tax liability is $250, you will not be eligible for a tax credit greater than $250.

3.    Beginning January 1, 2011, there is a $500 lifetime limit on the tax credit, so if you already received energy efficiency tax credits from 2006-2010 that counts toward the limit and it can’t go over the new limit of $500.

Claiming the Residential Energy Tax Credit

If you took the steps to make your home green in 2011 and your purchases meet the new eligibility requirements, congratulations!  You can claim the credit on IRS Form 5695 and file it with your 2011 taxes.  Don’t worry about the calculations.  TurboTax guides you and follows IRS guidelines to calculate the correct energy tax credit based on your entries.  Make sure you save all of your receipts and the Manufacturer’s Certification Statement for your records.

Still trying to decide whether to make your home energy-efficient? Compare the cost of your energy-efficient improvement with what you will be saving in energy costs.  Also, make sure the product meets the new eligibility requirements according to the Manufacturer’s Certification Statement.  The Manufacturer’s Certification Statement certifies that the product qualifies for the tax credit.  Go to the Energy Star website for more information.  Haven’t filed your 2010 taxes yet? Check our Take the Chill Off blog for the 2010 residential energy tax credit law.

TurboTaxLisa

Lisa Lewis is a CPA and the TurboTax Blog Editor. Lisa has 15 years of experience in tax preparation. Her success is attributed to being able to interpret tax laws and help clients better understand them. Lisa also has been a TurboTax product user for many years and understands how the software program works. In addition to extensive tax experience, Lisa also has a very well-rounded professional background. She has held positions as a public auditor, controller, and operations manager. Prior to becoming the TurboTax Blog Editor, she was a Technical Writer for the TurboTax Consumer Group and worked on a project to write new FAQs to help customers better understand tax laws. She could also be seen helping TurboTax customers with tax questions during Lifeline. For Lisa, getting timely and accurate information out to customers to help them is paramount.

Comments (14) Leave your comment

  1. Similar to Mohammad Yousuf above. I am helping my daughter file and she is applying for the energy tax credit for windows ($3896) and a patio door ($1119) which are certified to qualify for the energy tax credit by the manufacturer. There has never been a previous claim and she owns her home, but after entering all the information, Turbo Tax shows “0” credit.

  2. I am trying to do the Home Improvement credit for A/c, and turbo tax is keep telling that I have (0) credit, I should get $300.00 credit, what I am doing wrong on Home energy Improvement credit, please help.

  3. I have installed solar panels on my roof, and understand there is considerable Fed tax credit for this. How do I claim this with my TurboTax? What if the credit is more than my tax; can I carry the excess over to next year?

  4. This is an extremely informative post for anyone looking to upgrade their home windows with newer more effienct models. Few people realize there is a tax break for this type of home upgrade.

  5. I am trying to get the tax credit for an energy star rated door I installed in 2012 and am a little confused about the lifetime limit calculation. I did get a credit of $149 in 2006, but my main home back then was diffferent than my current main home. Is the lifetime limit tied to the particular property or is it a lifetime agregate of all properties I’ve used as my main home?

  6. Dear Lisa, I took energy credit for windows and a new roof. When I went to E-file my taxes, Turbo Tax blocked me because of a problem with form 5695. My state is Michigan, and new for this year they are asking for their tax returns to be E-filed only. I cannot see why the Feds would have a problem, unless this is caused by new laws that make Turbo-Tax software no longer viable for this form. Any Ideas? Thanks, Brian Ballish

  7. I’m still doing my 2011 taxes.
    I had installed in 2011 a high efficiency furnace (95%) with high efficiency fan. I have entered these will receive $200 tax credit.
    However, I also installed a high efficiency (14 SEER) Whole house A/C unit.
    I’ll be darned if I can find where to enter this to get my $300 tax credit.

    • Hi Richard,
      To enter the high efficiency A/C unit go to:
      – The “Enter Your Qualified Energy-Saving Improvements” screen and enter it under “Energy-Efficient Building Property”. If you click on “explain this” next to energy efficient building property you will see central air conditioners as one of the examples.
      Thank you,
      Lisa Greene-Lewis
      http://blog.turbotax.intuit.com

  8. Its such as you read my thoughts! You appear to grasp a lot approximately this, like you wrote the guide in it or something. I think that you could do with some % to pressure the message home a little bit, but instead of that, that is excellent blog. A great read. I will certainly be back.

  9. Great information on the new tax credits. The incentive for going “green” when it comes to choosing the right windows and appliances for your home increases when people realize the added benefit of a tax write off.

  10. I had a home energy audit performed recently and ended up saving a great deal of money on my electric bill as well as receiving rebates and a tax credit. Highly recommended!

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