Even though gas prices have gone down from their record highs six-months ago, many people are looking for ways to save on their energy costs. The Tax Code provides a number of energy tax incentives to encourage individuals and businesses to invest in energy-efficient property and also in alternative sources of energy. One of those incentives is the Code Sec. 25C residential energy property tax credit for individuals.

Improvements

If you make an eligible energy-related improvement to your home, the expenditure may qualify for the Code Sec. 25C credit. Eligible improvements include:

As you can see, the list of improvements is extensive. Moreover, the qualification of some types of improvements may not be readily apparent. For example, skylights and windows installed in a new location, not only replacement skylights and windows, appear to qualify for the credit. Another example is insulated garage door replacements, which qualify as exterior doors and, if sufficiently insulated, are an energy efficiency improvement.

ENERGY STAR

ENERGY STAR is a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy. Many products with the ENERGY STAR label qualify for the Code Sec. 25C credit. For example, ENERGY STAR labeled windows and skylights are eligible for the credit.  

Residence

To qualify for the credit, the improvement must be installed on, or in connection with, a dwelling unit located in the U.S. that is owned and used by you as your principal residence. The Code Sec. 25C credit is only available for existing homes. It cannot be used for new homes (however, other tax incentives may apply to new homes).

Amount

First, you need to keep receipts of all your qualifying purchases. Second, if you made any qualifying purchases in 2005 or 2006, and you claimed some but not all of the credit, you can use the unused portion in 2009.

The Code Sec. 25C residential energy property credit is 10 percent of the amount paid up to certain maximums. The general lifetime maximum is $500 for qualifying improvements. There is a $200 maximum for qualifying windows. Taxpayers cannot carry forward the credit. Generally, the amount of the credit will be limited by the amount of any nonbusiness energy property credit taken in 2006 or 2007.

2009 only

You need to act soon to take advantage of the Code Sec. 25C tax credit. Last year, Congress reinstated the credit but only for qualified energy property placed in service in 2009. Unfortunately, if you installed qualifying property in 2008, you cannot claim the credit. The previous credit expired as to property placed in service after December 31, 2007.

If you are considering the purchase of energy improvement property in 2009, please contact our office. Don't miss out on this potentially valuable tax break. We can review the credit in more detail as it applies to your situation.

If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.