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Budget Act of 2018 (BBA) Extended Credits – Residential Energy Credits – Form 5695



IRS - Residential Energy Tax Credits

Budget Act of 2018 (BBA) Extended Credits 

The BBA reinstated the nonbusiness energy property credit for 2017, and it reinstated the residential energy efficient property credit for qualified small wind energy property costs, qualified geothermal heat pump property costs, and qualified fuel cell property costs to the end of 2021.

You may claim these credits on your 2017 tax return if you otherwise meet the criteria. If you have already filed your return, you will need to file an amended return (Form 1040X) to claim these credits.

Purpose of Form

Use Form 5695 to figure and take your residential energy credits. The residential energy credits are:

  • The residential energy efficient property credit, and
  • The nonbusiness energy property credit.

Also use Form 5695 to take any residential energy efficient property credit carryforward from 2016 or to carry the unused portion of the credit to 2018.

Who Can Take The Credits

You may be able to take the credits if you made energy saving improvements to your home located in the United States in 2017.

Home

A home is where you lived in 2017 and can include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home that conforms to Federal Manufactured Home Construction and Safety Standards.

You must reduce the basis of your home by the amount of any credit allowed.

Main Home

Your main home is generally the home where you live most of the time. A temporary absence due to special circumstances, such as illness, education, business, military service, or vacation, won’t change your main home.

Costs

For purposes of both credits, costs are treated as being paid when the original installation of the item is completed, or, in the case of costs connected with the reconstruction of your home, when your original use of the reconstructed home begins. For purposes of the residential energy efficient property credit only, costs connected with the construction of a home are treated as being paid when your original use of the constructed home begins. If less than 80% of the use of an item is for nonbusiness purposes, only that portion of the costs that is allocable to the nonbusiness use can be used to determine either credit.

Only the residential energy efficient property credit (Part I) is available for both existing homes and homes being constructed. The nonbusiness energy property credit (Part II) is only available for existing homes.

Association Or Cooperative Costs

If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of such association or corporation.

If you received a subsidy from a public utility for the purchase or installation of an energy conservation product and that subsidy wasn’t included in your gross income, you must reduce your cost for the product by the amount of that subsidy before you figure your credit. This rule also applies if a third party (such as a contractor) receives the subsidy on your behalf.

Residential Energy Efficient Property Credit (Part I)

If you made energy saving improvements to more than one home that you used as a residence during 2017, enter the total of those costs on the applicable line(s) of one Form 5695. For qualified fuel cell property, see Lines 7a and 7b, later.

You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, and fuel cell property. Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to interconnect such property to the home. The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property.

Qualified Solar Electric Property Costs

Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home located in the United States. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. The home doesn’t have to be your main home.

Qualified Solar Water Heating Property Costs

Qualified solar water heating property costs are costs for property to heat water for use in your home located in the United States if at least half of the energy used by the solar water heating property for such purpose is derived from the sun. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. To qualify for the credit, the property must be certified for performance by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the state in which the property is installed. The home doesn’t have to be your main home.

Qualified Small Wind Energy Property Costs

Qualified small wind energy property costs are costs for property that uses a wind turbine to generate electricity for use in connection with your home located in the United States. The home doesn’t have to be your main home.

Qualified Geothermal Heat Pump Property Costs

Qualified geothermal heat pump property costs are costs for qualified geothermal heat pump property installed on or in connection with your home located in the United States. Qualified geothermal heat pump property is any equipment that uses the ground or ground water as a thermal energy source to heat your home or as a thermal energy sink to cool your home. To qualify for the credit, the geothermal heat pump property must meet the requirements of the Energy Star program that are in effect at the time of purchase. The home doesn’t have to be your main home.

Qualified Fuel Cell Property Costs

Qualified fuel cell property costs are costs for qualified fuel cell property installed on or in connection with your main home located in the United States. Qualified fuel cell property is an integrated system comprised of a fuel cell stack assembly and associated balance of plant components that converts a fuel into electricity using electrochemical means. To qualify for the credit, the fuel cell property must have a nameplate capacity of at least one-half kilowatt of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.

Costs allocable to a swimming pool, hot tub, or any other energy storage medium which has a function other than the function of such storage don’t qualify for the residential energy efficiency credit.

Joint Occupancy

If you occupied your home jointly with someone other than your spouse, each occupant must complete his or her own Form 5695. To figure the credit, the maximum qualifying costs that can be taken into account by all occupants for qualified fuel cell property costs is $1,667 for each one-half kilowatt of capacity of the property. The amount allocable to you for qualified fuel cell property costs is the lesser of:

  1. The amount you paid, or
  2. The maximum qualifying cost of the property multiplied by a fraction. The numerator is the amount you paid and the denominator is the total amount paid by you and all other occupants.

These rules don’t apply to married individuals filing a joint return.

Example

Taxpayer A owns a house with Taxpayer B where they both reside. In 2017, they installed qualified fuel cell property at a cost of $20,000 with a kilowatt capacity of 5. Taxpayer A paid $12,000 towards the cost of the property and Taxpayer B paid the remaining $8,000. The amount to be allocated is $16,670 ($1,667 x 10 (kilowatt capacity x 2)). The amount of cost allocable to Taxpayer A is $10,002 ($16,670 x $12,000/$20,000). The amount of cost allocable to Taxpayer B is $6,668 ($16,670 x $8,000/$20,000).

Nonbusiness Energy Property Credit (Part II)

You may be able to take a credit equal to the sum of:

  1. 10% of the amount paid or incurred for qualified energy efficiency improvements installed during 2017, and
  2. Any residential energy property costs paid or incurred in 2017.

However, this credit is limited as follows.

  • A total combined credit limit of $500 for all tax years after 2005.
  • A combined credit limit of $200 for windows for all tax years after 2005.
  • A credit limit for residential energy property costs for 2017 of $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property.

If the total of any nonbusiness energy property credits you have taken in previous years (after 2005) is more than $500, you generally can’t take the credit in 2017.

Subsidized Energy Financing.

Any amounts provided for by subsidized energy financing can’t be used to figure the nonbusiness energy property credit. This is financing provided under a federal, state, or local program, the principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.

Qualified Energy Efficiency Improvements

Qualified energy efficiency improvements are the following building envelope components installed on or in your main home that you owned during 2017 located in the United States if the original use of the component begins with you, the component can be expected to remain in use at least 5 years, and the component meets certain energy standards.

  • Any insulation material or system that is specifically and primarily designed to reduce heat loss or gain of a home when installed in or on such a home.
  • Exterior windows and skylights.
  • Exterior doors.
  • Any metal roof with appropriate pigmented coatings or asphalt roof with appropriate cooling granules that are specifically and primarily designed to reduce the heat gain of your home.

For purposes of figuring the credit, don’t include amounts paid for the onsite preparation, assembly, or original installation of the building envelope component.

To qualify for the credit, qualified energy efficiency improvements must meet certain energy efficiency requirements. See Lines 19a Through 19h, later, for details.

Residential Energy Property Costs

Residential energy property costs are costs of new qualified energy property that is installed on or in connection with your main home that you owned during 2017 located in the United States. Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the energy property. Qualified residential energy property is any of the following.

  • Certain electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane, or oil water heaters; and stoves that use biomass fuel.
  • Qualified natural gas, propane, or oil furnaces and qualified natural gas, propane, or oil hot water boilers.
  • Certain advanced main air circulating fans used in natural gas, propane, or oil furnaces.

To qualify for the credit, qualified residential energy property must meet certain energy efficiency requirements. See Lines 22a Through 22c, later, for details.

Joint Ownership Of Qualified Property

If you and a neighbor shared the cost of qualifying property to benefit each of your main homes, both of you can take the nonbusiness energy property credit. You figure your credit on the part of the cost you paid. The limit on the amount of the credit applies to each of you separately.

Married Taxpayers With More Than One Home

If both you and your spouse owned and lived apart in separate main homes, the limit on the amount of the credit applies to each of you separately. If you are filing separate returns, both of you would complete a separate Form 5695. If you are filing a joint return, figure your nonbusiness energy property credit as follows.

  1. Complete lines 17a through 17c and 19 through 24 of a separate Form 5695 for each main home.
  2. Figure the amount to be entered on line 24 of both forms (but not more than $500 for each form) and enter the combined amount on line 24 of one of the forms.
  3. On line 25 of the form with the combined amount on line 24, cross out the preprinted $500 and enter $1,000.
  4. On the dotted line to the left of line 25, enter “More than one main home.” Then, complete the rest of this form, including line 18. The amount on line 18 can exceed $500.
  5. Attach both forms to your return.

Joint Occupancy

If you owned your home jointly with someone other than your spouse, each owner must complete his or her own Form 5695. To figure the credit, there are no maximum qualifying costs for insulation, exterior doors, and a metal or asphalt roof. Enter the amounts you paid for these items on the appropriate lines of Form 5695, Part II. For windows and residential energy property costs, the amount allocable to you is the smaller of:

  1. The amount you paid, or
  2. The maximum qualifying cost* of the property multiplied by a fraction. The numerator is the amount you paid and the denominator is the total amount paid by you and all other owners.

*$2,000 for windows; $300 for energy-efficient building property; $150 for qualified natural gas, propane, or oil furnace or hot water boiler; or $50 for an advanced main air circulating fan.

IRS Instructions

 

 

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