In the IRS Newswire (Issue No. IR-2009-98), dated October 29, 2009, the IRS reminded taxpayers that the American Recovery and Reinvestment Act (ARRA) expands the Non-Business Energy Property Credit and Residential Energy Efficient Property Credit.

Non-Business Energy Property Credit

Home-owning taxpayers can save up to $1,500 on their 2009 tax bill by spending $5,000 or more on qualified energy-saving improvements. This credit equals 30 percent of the homeowner’s spending on the energy-saving improvements, up to a maximum credit of $1,500 for both the 2009 and 2010 tax years combined. The actual credit will vary based on the taxpayer’s actual tax liability, other credits claimed and various other factors.

Qualified energy-saving improvements include the cost of high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, plus installation costs. Other items that qualify for the credit is the cost for energy-efficient windows and skylights, doors, some insulation and certain roofs, but not including their installation costs.

Residential Energy Efficient Property Credit

Another tax credit designed to increase investments in alternative energy equipment is the Residential Energy Efficient Property Credit equals 30 percent of the cost of qualified residential energy-efficient equipment, including solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines and fuel cells, plus installation costs. Except for fuel cells, there is no maximum credit limit for these purchases.

Summary

According to the IRS, not all energy-efficient improvements qualify for these tax credits, so taxpayers must review the manufacturer’s “Tax Credit Certification” statement before buying and installing the equipment. The Certification statements are with the product packaging or can be found on the manufacturer’s website. While the taxpayer can usually rely on these certifications, they should cross-check with the IRS, their CPA, professional tax preparer or other tax practitioner.

Note: The manufacturer’s “Tax Credit Certification” is not the same as the Department of Energy’s “Energy Star” label. As a result, not all “Energy Star” labeled equipment are qualified for these credits.

Taxpayers can claim both credits when filing their 2009 returns, regardless of whether they itemize deductions on Form 1040 Schedule A. These tax credits are claimed using the “Residential Energy Credits” form (IRS Form 5695) available from the IRS website, CPAs, professional tax preparers or other tax practitioners.

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