Energy Efficiency Tax Credit Information for Filing your 2012 Tax Return
As in years past, tax credits have been extended to cover certain energy efficiency improvements you have made to your home during 2012. Apart from bigger home solar and geothermal projects, the energy efficiency improvements considered for tax credit purposes include:
- Biomass Stoves
- Heating, Ventilating, Air Conditioning (HVAC)
- Roofs (Metal & Asphalt)
- Water Heaters (non-solar)
- Windows & Doors
Labor costs for the installation are not included in the tax credit.
While the amount of the tax credit being offered is much less (and limited) than in 2009 and 2010, you can still use these tax credits to help save more money on any energy efficiency improvements you have made to your existing home and reduce your federal tax burden. To qualify, your home must be your principal residence, and the improvements must have been “laced in service” (installed) during 2012. New construction and rentals do not qualify. You will also need to fill out the 2012 version of IRS Form 5695 and submit it with your 2012 federal taxes by April 15, 2013.
Windows of Opportunity
Filling out the form is easy if you stay organized. It’s important that you have kept your receipts from the energy efficiency products you had installed over the course of 2012. You will also need the Manufacturer’s Certification Statement. These are usually available from each manufacturer’s website. To keep it all simple, let’s walk through filling out the form for the three windows that we bought and installed in summer 2012. Filing for the Energy Efficiency Tax Credit will let us take 10% of the cost (excluding labor) up to $200 for windows and skylights on our 2012 federal taxes.
First, we need to be sure that each window qualifies as being energy efficient in order to claim the correct tax credit on our federal taxes. That means they must be Energy Star qualified, be manufactured by an Energy Star partner, tested and certified by the National Fenestration Rating Council (NFRC), and also meet DOE energy efficiency guidelines.
In other words, if they came with the Energy Star logo on their label, they qualify.
Of the three windows we bought and installed last summer, only the small, cheap one wasn’t Energy Star qualified. Consequently, we can’t include its cost on our federal taxes (we used it to replace a rotted one in the garage). The other two, however, are Energy Star approved and do qualify. Form 5695 states:
For purposes of taking the credit, you can rely on a manufacturer’s certification in writing that a building envelope component is an eligible building envelope component. Do not attach the certification to your return. Keep it for your records.
We can double check this by going to the manufacturer’s website. We’ll also download a copy of the certification statement and include it with our tax records.
Filling out the Form
Go to page two and start Part II: Nonbusiness Energy Property Credit. Energy efficiency improvements on this part must be for your main home and will include windows, skylights, doors, insulation, Energy Star qualified roofing, and HVAC systems. Since our windows are Energy Star qualified, we’ll check 19a “Yes” and move on. After we fill in the home’s address, we come to #20: Lifetime limitation. Here, we need to fill in any previous energy efficiency tax credits we’ve taken from 2006 to 2011. We’ll need to check our previous tax returns of course, but as long as those amounts don’t add up to $500 or more we can continue on the form.
At Line 21d, we enter the cost of the two windows we installed. Both were Low-E windows; one cost $128 and the other larger one (for watching birds and adoring our butterfly garden) cost $143. These add up to $271. Remember that you use only the price of the windows. You cannot include labor and installation costs.
Continue to line 21 f. Here it says, “If you claimed window expenses on your Form 5695 for 2006, 2007, 2009, 2010, or 2011, enter the amount from the Window Expense Worksheet (see instructions); otherwise enter -0-”
Window Expense Worksheet
Let’s say that we installed a small energy efficient window in the bathroom in 2009 and took a credit for $15. Turn to page 6 on the form and in the top left corner is the “Window Expense Worksheet—Line 21f”. Plug in $15 into Line 3 here and also on Line 5. Now, multiply our $15 by 3.0 as per the instructions. That give us $45. Since we have no other amounts listed, we take this amount back to Line 21f. On Line 21g, we subtract the $45 from the amount in Line 21e, which is $2,000. This gives us $1955.00 on Line 21g.
On Line 21 h, its says, “Enter the smaller of line 21d or line 21g”. So, we enter our window cost of $271.00 on Line 21 h. Since we don’t have other energy tax credits, we enter the number again on Line 22. On line 23, we multiply our $271.00 by 10% (.10). This gives us $27.10, which we put on Line 26. Since we haven’t claimed more than $500 in past credits (the maximum credit on Line 27), we will enter $27.10 on line 30.
Credit Limit Worksheet
In order for our tax credits to not total more than our taxes, Line 31 contains a “Limitation based on tax liability.” We need to do the Credit Limit Worksheet—Line 31 at the end of page 6:
- On line 1 of the worksheet, enter the amount from Form 1040, line 46, or Form 1040NR, line 44.
- On line 2, enter the total of any tax credits from Form 1040, lines 47 through 50, and Schedule R, line 22; or Form 1040NR, lines 45 through 47.
- Subtract line 2 from line 1. Also enter this amount on Form 5695, line 31. If zero or less, stop; you cannot take the nonbusiness energy property credit.
Let’s say that our federal taxes are $5,926 and we enter that on Line 1 of the worksheet. For Line 2 of the worksheet, we enter our credit total which is $2,000. After subtracting line 2 from line 1, we are left with $3,926.00. Enter $3,926.00 on line 31 of Form 5695.
Finally, enter the lesser amount of Line 30 or Line 31 on Line 32. This is $27.10 and is our Energy Efficiency Tax Credit. We also enter this amount on Form 1040, line 52, or Form 1040NR, line 49.
Is it Worth It?
Every taxpayer who files Form 5695 with their federal taxes will have different credit amounts for different types of Energy Star qualified improvements. However, all will be able to win some tax relief for doing their part to improve energy efficiency. Even though our $27.10 seems modest, it might also be the very amount that raises or lowers our tax rate. When every dollar counts, it’s these modest credit amounts that determine whether you get an income tax refund or not.
Please note that the author of this post is NOT a tax professional; thereby, the information is not meant to replace or serve as a substitute the experience and expertise of a licensed tax professional.