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Homeowners can take up to $500 federal tax credit for energy efficiency work in 2016

1/3/2017 1:48:43 PM

The bad news: The federal Residential Energy Efficiency Tax Credit expired on Dec. 31, 2016. 

The good news: You can claim a tax credit of up to $500 for qualified systems or equipment installed during the past year.

The Residential Energy Efficiency Tax Credit, which expired at the end of 2014, was renewed by Congress on Dec. 18, 2015. The credit was made retroactive to Jan. 1, 2015, so taxpayers could take the credit for equipment installed in 2015 or 2016.

The credit applies to energy efficiency improvements in the building envelope of existing homes and for the purchase of high-efficiency heating, cooling and water-heating equipment. Efficiency improvements or equipment must serve a dwelling in the United States that is owned and used by the taxpayer as a primary residence.

As in previous years, the maximum tax credit for all improvements made from 2011-2016 is $500. If a taxpayer has already claimed a tax credit of $500 for purchases made in any previous year, they are ineligible for additional tax credits on new purchases. 

Examples of what products/systems may qualify and the tax credit amounts:

  • Insulation materials and systems designed to reduce a home's heat loss or gain: 10% of the cost (not including installation cost), up to $500
  • Natural gas, propane, or oil furnace or hot water boiler with an annual fuel utilization rate of 95 or greater: $150
  • Electric heat pump water heater with an energy factor of at least 2.0: $300
  • Central air conditioner which achieves the highest efficiency tier established by the Consortium for Energy Efficiency: $300
  • Exterior doors and windows (including skylights). Equipment must meet version 6.0 ENERGY STAR program requirements: 10% of cost (not including installation costs), up to $200 for windows and skylights; up to $500 for doors. 

The Database of State Incentives for Renewables and Efficiency (www.dsireusa.org) offers details about the Residential Energy Efficiency Tax Credit, including instructions for IRS Tax Form 5695 and the form itself, which you will need to fill out to take the credit. Consult your tax professional with questions. Also, check www.dsireusa.org to learn of utility rebates for high efficiency equipment.

Minnesota Energy Tips is provided twice a month by the Minnesota Department of Commerce, Division of Energy Resources. Contact the division’s Energy Information Center at energy.info@state.mn.us or 800-657-3710 with energy questions.

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