Can You Receive Energy Tax Credits for a Second Home?
The answer on the question above is - it depends on the tax credit. Two years ago the energy tax credits were only applicable to your primary residence but that has changed for many programs.
Those initial tax credits have expired. However, when you prepare and efile your tax return this year, new credits are available that focus on adding energy saving features and appliances to all homes and for these programs changes made in your second home may qualify for the tax credit.
One of the least advertised but longest running tax credits is for homeowners who install solar energy systems in their homes. The credits cover photovoltaic systems that create electricity but also cover qualified solar water heating systems.
The tax credits are for any qualifying solar systems placed at any dwelling, not only your primary residence. The valid dates for this tax incentive are from Jan 1, 2006 through December 31, 2016.
The tax credits cover 30% of the cost of the solar system installed. Prior to 2009 there was a maximum credit of $200 that could be earned but today there is no cap.
For a solar water system to qualify it must be certified for performance by the Solar Rating Certification Corporation or endorsed by state government. The system must provide at least 50% of the energy used to heat water in the home and cannot be used for swimming pools or hot tubs.
For photovoltaic systems the installation must provide the electricity for the home and meet fire and other code standards.
To receive the credit you must provide the cost of the system (including labor and other expenses necessary for installation), the date when the system went into service and provide proof the systems meeting qualifying criteria of inspection. Credit not used in one year can be carried forward into the next year's taxes.
Energy Efficiency tax credits for homeowners were to expire in 2010 but were extended with a few changes. The maximum tax credit if combined with other federal energy credits is $500.
It covers up to 10% of the cost of improvements when involving insulation, roofs and doors to a maximum of $500 credit. The maximum credit for window installations is $200 and the windows must meet EnergyStar standards.
If you are upgrading furnace or air conditioning systems there is a $300 maximum credit to apply for. The same limit of $300 applies to biomass stoves (wood and pellet stoves) and water heaters.
The total tax credit a homeowner can receive for all of the qualifying improvements is $1500 for the entire time the credit is available.
When energy credits are available they cover much more in the way of improvements than many homeowners realize. Some of the most common improvements that can result in a tax credit for a primary residence or a second home are:
- Windows and storm windows
- Energy efficient HVAC systems
- Heat reflective roofing (cool roofs)
- Energy efficient water heaters
- Exterior doors and storm doors
- Wood and pellet biomass stoves
There are improvements that carry no limit for a tax credit. Some high end improvements are eligible for a 30% tax credit no matter how much you spend on the changes. These include:
- Geothermal heat pumps
- Solar hot water heaters
- Solar panel systems
- Wind energy systems (residential)
To qualify you must buy systems that are energy efficient and approved for the tax credit. These are clearly explained on various government sites that list tax credit and how to apply for them.
When it comes to installing different types of alternative energy systems (e.g solar and wind energy) the systems must meet fire and electrical safety codes and must provide the electricity for the residence.
There are appliances that do not qualify for tax credits in either a primary or second home. They include:
- Laundry equipment (washers and dryers)
- Ceiling fans
- Programmable thermostats
- Tankless water heaters
- Room air conditioners (window or portable)
It is important to carefully check the dates required to see if your second home will qualify for energy tax credits. Initially, second homes were often excluded but that has changed.
It is recognized that all homes need to be energy efficient so many of the tax credit programs have been expanded to allow a second home to qualify for energy tax credits.
Also be certain to check the dates when installation must be done. There are several government tax credit programs where you have time to submit for the tax credit but must have installed the systems by a certain date.