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Frequently asked questions about the 2011 federal tax credits...
Can the homeowner claim $500 in energy efficiency tax credits if they received $500 or more in energy efficiency tax credits in 2006 - 2010?
No. The lifetime cap has been reinstated. Taxpayers are only eligible for a total of $500 in energy effificency tax credits.
Can a homeowner use the entire $500 limit as a credit toward the installation of one appliance?
No. There are individual caps on each appliance. For example, a homeowner can receive 10% of the costs (up to a $300 limit) for installing a high-efficiency air conditioner, heat pump, or hot water heater.
Does the tax credit apply to the cost of the equipment or equipment plus labor?
The tax credit applies to the installed costs, including labor, of the qualified heating, cooling, and plumbing equipment.
How will a taxpayer claim the credit and receive their money?
In the past, the IRS has directed taxpayers to use Form 5695, Residential Energy Efficient Property Credit. Taxpayers are not required to file anything more than the form, but are instructed to keep records of their installation.
What’s the difference between a tax credit and a tax deduction?
As a tax credit applies against the taxpayers’ liability. A tax deduction applies against a taxpayer’s income, lowering the adjusted gross income and possibly moving the taxpayer to a lower tax bracket. Tax credits have a greater benefit to a taxpayer. With a tax credit, if the taxpayer owes $2000, in taxes, their liability is reduced to $500. If they owe nothing, they can expect a $1500 refund.
What if the homeowners already claimed $500 in tax credits in 2005, 2006, 2007, 2009, or 2010?
The “lifetime caps” have been reinstated. Any previous claims DO count against the current $500 tax credit limit.
Can a homeowner claim the credit for improvements to a second home?
No and Yes. The tax credit is only available for TRADITIONAL heating, cooling, or plumbing improvements to the taxpayer’s primary residence. However, the tax credit for GEOTHERMAL improvements may apply to a second home or rental.
What other types of energy efficiency improvements qualify for the tax credits?
Homeowners may qualify for the tax credits if they make qualified improvements to: heating, cooling or plumbing equipment, windows and doors including skylights, storm windows and storm doors; roofing; and insulation. The homeowner's credit cannot exceed the lifetime limit of $500.
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