How the Solar Energy Credit and the Residential Energy Efficient Property Credit Works?
By Sandor Lenner
This nonrefundable energy tax credit will help individual taxpayers pay for qualified their residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines when they file their 2009 tax returns in early 2010. The American Recovery and Reinvestment Act which was enacted earlier in early 2009, expanded this credit. The new law removes some of the previously imposed maximum amounts and allows for a tax credit equal to 30% of the cost of qualified property. The credit amount is generally equal to 30% of the cost of the equipment and usually includes the labor used to install it. Beginning in 2009, there is generally no cap on this credit and it’s available for equipment placed into service through 2016. Unfortunately it’s a nonrefundable credit, which is an important distinction because that means it can only reduce your tax liability to zero.
Credit basics The credit is available for property placed in service prior to January 1, 2017 and the credit is generally is equal to 30% of certain of solar electricity equipment, solar water heaters, fuel cell plants, qualified small wind energy property and qualified geothermal heat pump(eligible equipment).
Qualifying property The following types of property may qualify for the 30% credit:
o Property that uses solar energy to produce electricity for use in your home may qualify as solar electric property cost. You can purchase a solar panel or other property that may be installed on a roof. These costs are not limited to your main home.
Qualified solar water heating property costs pertain to expenses incurred to heat water for use in a dwelling located in the United States and used as a residence if at least half of the energy is derived from the sun. An example is solar panels. In this case, the home does not have to be the taxpayer’s main home.
Qualified small wind energy property costs. A good example is a wind turbine that is used to generate electricity for use your home. For this type of cost, the home does not have to be the your main home.
Qualified geothermal heat pump property costs are expenses incurred for property installed on or in connection with the taxpayer’s home. Qualified geothermal heat pump property is the equipment that uses the ground or groundwater as a thermal energy source to heat or cool the taxpayer’s home. In this case the home does not have to be the taxpayer’s main home.
A qualified fuel cell power plant that is installed in your main home, must contain a system consisting of a fuel cell stack assembly and associate components. This equipment must be able to convert fuel into electricity.
Labor costs resulting from on-site preparation, assembly, or original installation of the residential energy efficient property and piping or wiring that connects the eligible property to the home can also qualify for the credit.
Basic credit limits The $500 limitation on qualified fuel cell property is the only credit limitation. There is no limit to the 30% credit based upon the eligible equipment.
Since this credit existed in the past it is important that you verify that the certification statement is for the 2009 credit rather than a credit for an earlier year. A word of advice, since certain slow-moving energy-efficient products from last year may remain unsold, the equipment may be aggressively marketed at closeout prices. Therefore, it’s important that you received a 2009 certification from the manufacturer. This is required to use the credit on your 2009 tax return.
The residential alternative energy credit that you claim cannot be greater than your regular income tax liability(reduced by the foreign tax credit) and the alternative minimum tax over the sum of certain nonrefundable credits. In 2010, these limits will change and therefore you should consider the changes in the IRS regulations. For jointly owned property special proration rules must be used.
In order to obtain the credit, a taxpayer must complete Form 5695. Before completing Form 5695, taxpayers need to calculate any credit for the elderly or the disabled, or other motor vehicle related credits. The credit is limited to the taxpayer’s tax liability and the credit cannot be utilized if you have no tax liability. Also, the credit is not available to 1040EZ and 1040A tax filers. Therefore, if you otherwise would qualify to use Forms 1040EZ and 1040A, you now will have to file a regular Form 1040.
This is a complex calculation and includes an eligible credit carry forward determination. For more information please refer to IRS Notice 2009-41.
To learn more about how we can help you electronically prepare your tax tax returns, please visit http://www.sl-cpa.net and register in our secured portal for the 2009 tax season and you will lock into our special pre tax season 1040EZ price, a monthly tax and accounting newsletter and over 50 financial web based calculators at no additional charge.
Sandor Lenner,CPA/MBA has over 35 years of accounting experience and is also a Certified QuickBooks ProAdvisor.He works part-time with Susan Missal Lenner, P.A. http://www.sl-cpa.net
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