Residential Energy Credit

The Residential Energy Credit has been reinstated for 2009 and is now worth more than in previous years. The nonrefundable credit is available for individuals who make energy-conscious purchases to improve the energy efficiency of their home. The credit is available for purchases made after tax year 2005.

Part I - Nonbusiness Energy Credit

The credit amounts to 30% of eligible energy-saving home improvements, with a $1,500 maximum for 2009 and 2010 combined.

Requirements to Claim Credit

Each item must meet or exceed criteria established by the 2000 International Energy Conservation code.
Each item must be installed in your primary home. A primary home is the home where you live most of the time, including a house, houseboat, mobile home, condominium, manufactured home, or cooperative apartment.
The expenses must be paid or incurred in the current tax year.

Qualifying Items / Expenses

Insulation material or systems to reduce heat loss or gain
Exterior windows, including skylights
Exterior doors
Roofing designed to reduce heat gain
Residential energy property costs, including labor costs to the on-site preparation, assembly or original installation of the property
- Natural gas, propane or oil furnaces
- Hot-water boilers
- Main air circulating fans used in natural gas, propane or oil furnaces
- Electric heat pump water heaters
- Natural gas, propane or oil water heaters
- Electric heat pumps
- Geothermal heat pumps
- Central air conditioners

Part II - Residential Energy-Efficient Property Credit

A credit is also available for investments in alternative energy for your home. The Residential Energy-Efficient Property Credit also equals 30% of qualifying improvement costs, with no dollar limit except for fuel cells. Installation is usually included. The credit is limited to tax liability for 2009, but unused credit may be carried over to 2010.

Requirements to Claim Credit

Property and installation costs must be for use in your home located in the United States. Except for fuel cells, the home does not have to be your main home.

Qualifying Items

Solar panels
Solar water-heaters
Wind turbines
Geothermal heat pumps
Fuel cells, with restrictions:
- The fuel cell must be installed on your main home in the U.S.
- The fuel cell must have a capacity of at least .5 kilowatt.
- The credit cannot exceed $500 for each .5 kilowatt generated.

To claim the credit, complete Form 5695 and attach the form to your Form 1040 or Form 1040A.

For more information, see Energy Incentives in the Recovery Act.