I'm fielding a lot of phone calls from clients about the current energy credits. It makes sense, this is the time of the year people are planning home improvements. They are talking to salespeople who are mentioning the credit and they may have heard friends and family talk about taking the credit and saving a lot of money on their taxes. The good news is that the non-business (IRS talk for personal) energy credit was extended through 2011. The really bad news is that they took it back to the 2006 -2007 level.
In 2011, a taxpayer who makes specific improvements to their principle residence may qualify for a credit on their 2011 tax return. This credit is The Nonbusiness Energy Property Credit and a taxpayer could qualify by making improvments to their home. The first group of improvements are to the building envelope and includes windows, doors, insulation and specific roofs. The taxpayer may get a credit for 10% of the cost of these materials. The limit is $200 for windows and $500 for the whole credit. The second group of improvements are for specific heaters, boilers, fans. The amount of the credit depends on the actual type of improvement; up to $300 for heat pumps, A/C, water heaters, $150 for other furnaces or water boiler, and $50 for a circulating fan. Again the $500 limit applies. The qualifying rules are very specific as to what materials and appliances will apply. The specific qualifications can be found on the EnergyStar website. And if your improvement qualifies, get a manufacturer's certificate for your records.
Now for the really stinky requirement. The maximum credit is $500. Of that, only $200 can come from windows. And this is the maximum lifetime credit. So if you took this credit anytime after 2005, you have to include the prior credit in the calculation. Say in 2007 you took a credit for windows for $200, that only leaves you $300 possible credit left and none for windows. Those new windows/ doors, heat pump in 2010 that got you a $1500 credit back when you did your 2011 tax return, maxed you out. No more credit no matter the cost of the new improvements.
The Nonbusiness Energy Property Credit can still be a good deal in 2011. Just make sure that your improvement to your main home qualifies and you have the documentation to prove it. And remember to offset this year's credit by any prior year's credit. And even if you can't take the credit, you might be saving your utility money.