There are a number of federal tax credits that expire at the end of 2016.  Below is a summary of the key provisions:

Residential energy efficiency tax credit – This tax credit expired at the end of 2014 and was retroactively renewed for purchases between January 1, 2015-December 31, 2016.  Any qualified equipment installed in 2015 and 2016 is eligible for this credit.  However the cumulative maximum amount of tax credit that can be claimed by a taxpayer in all years 2011-2016 combined is $500 and is calculated as 10% of cost up to $500 or a specific amount from $50-$300.  If a taxpayer has already claimed a tax credit of $500 for purchases made in any previous year they are ineligible for additional tax credits for any new equipment purchases.

This tax credit is applicable to energy efficient improvements in a building owned and used by the taxpayer as a primary residence in the U.S.  It is not applicable to new construction and rental properties.  It includes energy-efficient windows, doors, and roofs that meet or exceed the Energy Star program requirements, insulation, and high efficiency heating, cooling, and water-heating equipment.

To claim this federal tax credit, complete the second page of IRS Form 5695 “Residential Energy Credits” and file the form with your federal individual tax return.

Residential geothermal heat pump tax credit – This tax credit is in effect for geothermal heat pumps installed in a home you own and use as a residence, including second homes, between January 1, 2009 and December 31, 2016.  Existing homes and new construction qualify for the credit.  The credit is calculated as 30% of the cost, including installation costs, with no upper limit.  The geothermal heat pump must meet the requirements of the Energy Star program in effect at the time that the expenditure was made.

Residential solar energy property tax credit – This tax credit is in effect for qualified solar water heating and photovoltaic systems installed in a home you own and use as a residence, including second homes, between January 1, 2009 and December 31, 2021 (this credit was scheduled to expire in 2016 but was recently extended).  The credit is calculated as 30% of the cost, including installation costs, with no upper limit through 2019, then decreases to 26% for 2020 and 22% for 2021.  The solar energy property must meet the requirements of the Solar Rating Certification Corporation (SRCC).

To claim the federal tax credits for residential geothermal heat pumps and solar energy property, complete the first page of IRS Form 5695 “Residential Energy Credits” and file the form with your federal individual tax return.

Business geothermal heat pump tax credit – Business are eligible for tax credits for qualified geothermal heat pump property which uses the ground or ground water as a thermal energy source to heat or cool the building.  The credit is calculated as 10% of the cost, including installation costs, with no upper limit.

Business solar energy property tax credit – Businesses are eligible for tax credits for qualified solar water heating and photovoltaic systems and for certain solar lighting systems.  Qualifying equipment will use solar energy to generate electricity, to heat/cool or provide hot water to a structure, or to illuminate the inside of a building by means of fiber-optic distributed sunlight.  The credit is calculated as 30% of the cost, including installation costs, with no upper limit.

To claim the federal tax credits for business geothermal heat pumps and solar energy property, complete Part III of IRS Form 3468 “Investment Credit” and file the form with your federal business tax return.

In addition to federal tax credits, there may be additional incentives available at the state and local government level for energy efficient property.  Please contact us if you would like to discuss any of these incentives in greater detail.