Additions and structural improvements (such as adding a garage or room, taking out interior walls, putting in new floors) are not a deductible expenditure and must be added to the cost of your house. However, some residential expenditures may qualify for the non-business residential energy credit on your federal income tax return and a deduction or credit on your state income tax return.
To claim the energy credit on your federal tax form use form 5695. These rules are for tax year 2012. They may qualify in 2013 any unused 2012 credits may be carried over to 2013, but you need to check the tax law or ask your tax return preparer when your 2013 return is prepared.
Qualifying Expenditures
A. 30% of the cost (which includes labor for on site preparation and installation), of water heating property, small wind energy property, geothermal heat pumps, solar water and house heating items (including solar panels as part of a roof). Amounts attributable to hot tubs and swimming pools do not qualify.
B. Other items and amounts:
(1) 10% of the cost of insulation, exterior windows (total lifetime costs can’t exceed $200), sky lights, and a metal or asphalt roof.
(2)Â up to $300 for energy-efficient building property
(3)Â up to $150 for qualified gas, propane, oil furnace, hot water boiler.
(4)Â Â up to $50 for an advanced main air circulating fan.
The total credits for all tax years are limited to $500. If your credits in tax years 2006, 2007, 2009, 2010, 2011, and 2012 exceeded $500, you cannot take a credit in future tax years, unless Congress changes the law.
C. To be eligible the energy savings, usage of all items must originate with the taxpayer in your primary home located in the United States and are expected to last at least five years. Also, the property must meet the requirements of the Energy Star Program and be certified by the Solar Rating Certification Corporation or a comparable entity certified by the government of the state where the property is located. The total cost of all energy saving property cannot exceed $2,000.
If 20% or more of the amounts are used for business (e.g., a home office or a separate attached structure) you can only take the portion of the expenses that are used for personal use. If you are a member of a qualified condominium management association for which you own, or are a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share.
Dr. Goedde is a former college professor who taught income tax, auditing, personal finance, and financial accounting and has 25 years of experience preparing income tax returns and consulting. He published many accounting and tax articles in professional journals. He is presently retired and does tax return preparation and consulting. He also writes articles on various aspects of taxation. During tax season he works as a volunteer income tax return preparer for seniors and low income persons in the IRS’s VITA program.
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