How to Claim Energy Tax Credit

As an incentive to US citizens making home improvements directed toward saving energy, the concept of energy tax credit was introduced. If we are to reduce the dependency of US economy on off shore fuel import and especially crude oil import, it is necessary the usage of alternative energy sources like solar energy and fuel cells be promoted. With this objective the US government grants energy tax credit to any one installing new energy efficient appliances to reduce the overall annual energy bills.

Up to 30% of the installation cost is reimbursed and the amount is deducted from your annual tax liability, for any improvements made between January, 2009 till end of December 2010. The tax credit has been reduced for 2011, after the passage of a new bill by President Obama. However, the tax credit on installation of renewable energy related equipment remains to be 30% with no upper limit till 2016.

Eligibility Conditions for Energy Tax Credit

One of the principal eligibility conditions for claiming energy tax credit is that the improvements be made in your principal home and not in any of your other residences that have been given out on rent. For any home improvements directed towards energy savings, made between January 1, 2009 to December 31, 2010, you can claim an energy tax credit up to 30% of equipment installation cost, with a maximum limit of $1500. This credit can only be claimed for residential and non-business related home improvements.

For any home improvements you make in 2011, the credit has been reduced to 10%, with a maximum limit of $500 (which is same as the one that existed from 2005 to 2008). Any home improvement spending related to home insulation, non solar hot water stoves, roofing insulation, installation of doors and windows, heating systems, air conditioning and ventilation qualifies for a energy tax credit claim.

In case of home improvements related energy tax credit, there is a catch that you should know about. If you have already claimed tax credits amounting to $1500 for 2009-2010 or $500 for 2005-2008 for home improvements, you are not eligible to claim for any more in 2011. Also it's necessary that all the equipment you install have an energy star rating.

If you spend on installing new renewable energy equipment related to solar, wind or geothermal power, fuel cells or upgradation, you can claim a 30% tax credit with no upper limit till 2016. This is to promote the usage of renewable energy resources which can bring down the crude oil dependence of the country in the near future. This tax credit is directly subtracted from your total income tax, reducing your liability substantially.

How to Claim Energy Tax Credit?

Collect all the contractor certifications and receipts related to the purchasing and installation of equipment. Make a sum total of the amount of spent and calculate the amount of tax credit you can claim.

Get form 5695 from the IRS website and fill in all the details of your home improvement expenses, after reading the instructions supplied with it. You will have to enter all the expenses item wise and attach or the related receipts. Details are explained in the form itself.

Claims related to 2009-2010 home improvements must be submitted along with 2010 taxes and those related to 2011 home improvements should be submitted with 2011 taxes. You can then claim a refund by mentioning the details in form 1040 related to income tax return. You may claim tax credit for home improvements that were made in previous years, for which you did not file claims before in the current year. Submit the duly filled form 5695, along with form 1040 to complete procedure.

As you can see, claiming energy tax credit is an extremely simple exercise. As discussed previously, make sure that you preserve your purchase receipts of all home improvement equipment directed towards energy savings, as you will need to submit it as evidence to claim energy tax credit. For more details regarding energy tax credit, visit the IRS website and refer to the form 5695. Fill all the necessary details in the form, attach the receipts and submit it along with your tax returns to claim credit.