Energy efficiency CAN EARN tax credits
The tax law provides a tax for those individuals that install residential energy-efficient property. The credit is available for property placed in service in years 2006-2016. For 2011, this credit can also be used to offset your alternative minimum taxable income, if applicable.
The credit allowed is 30% of the amount paid during the taxable year (subject to certain limitations, discussed below) for qualified solar electric property, qualified solar water heating property, qualified fuel cell property, qualified small wind energy property and qualified geothermal heat pump property. Expenses for on-site preparation, assembly or original installation of qualified property, and for piping or wiring to interconnect the property to your dwelling unit are included in the cost of the energy efficient property and become eligible for the credit.
The credit can be taken in the taxable year that the original installation of the energy efficient property is completed. If the energy efficient property is being installed in connection with the construction of a new residence, or the reconstruction of an existing residence, the credit is available in the taxable year that you begin to use the residence.
Several other rules and limitations apply to this credit. For example, if your residential unit is jointly occupied by two or more individuals, part of a housing cooperative or condominium association, or used for business purposes, or if the qualifying property is designed to service more than one dwelling unit, then you may be subject to other restrictions. Expenses for property used to heat swimming pools or hot tubs are not eligible for the credit.
Claiming this credit may impact the tax basis of your residence. Also, this credit is nonrefundable, meaning that the amount of the credit cannot exceed your tax liability for the year that you claim the credit. However, any amount that you are not allowed to claim because of this limitation may be carried forward to the next tax year.
Installation of energy efficient property for business purposes is also eligible for the energy efficient tax credit. The amount of this investment tax credit is also 30% and is claimed under the rules applicable to general business tax credits.
Joseph Arnett is tax partner at Deloitte & Touche.
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