February 28, 2017

Home Energy Federal Tax Credits: Most (but not all) expired on December 31, 2016

If you are planning energy efficient modifications to your home in 2017 and assumed you would get a federal tax credit for your efforts, you may be out of luck.

13 home energy federal tax credits (including those involving energy efficient insulation, roofs, windows, and doors) expired on December 31, 2016.  2 federal tax credits remain (for home solar pv and solar water heating systems) for another 5 years, although the credits begin to decrease after 2019.  It is unknown if the 13 expired credits will be renewed this year, or if the decrease in the remaining 2 credits will be amended.

And it only gets more complicated ...

Additional items of note:

  1. State and local home energy tax credits may not conform to federal tax law.  Be certain to check state and local tax codes to see what energy efficiency tax credits, if any, you are eligible for.
  2. Home energy federal tax credits apply (or applied) only to owner-occupied homes, both existing construction updates and new construction.  Rental homes are not eligible for these credits.
  3. If you lease your home solar system (rather than purchasing it), you are not eligible for any home energy federal tax credit.  (Bet your solar company didn't tell you that, did they?)
  4. But wait, there's more!  What is the definition of "home" for this credit?   Is your home, well, really a home in the eyes of our politicians that enact these laws?  Multi-family housing (more than 3 stories) is treated as a commercial building and is not eligible for the home energy federal tax credit program, but it is eligible for the commercial building tax deduction.  The relevant standards for this commercial buildings tax deduction are located in ASHRAE 90.1-2001.  (ASHRAE stands for the American Society of Heating, Refrigerating and Air-Conditioning Engineers.)  Apartment buildings are also considered commercial buildings and fall under this statute.  More more information (or perhaps a larger headache), refer to this Energystar.gov page.
Tax, Financial, or Insurance Concerns?

Mary Rae Fouts, EA  assists nationwide clients that have complex or technical concerns involving tax, financial, and insurance matters.  For more information about Mary's Tax, Consulting, and Expert Witness Services visit Fouts Financial Group.

Mary Rae Fouts

4 comments:

  1. Do you think the expired credits will be extended/

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    1. I truly don't have an opinion at this time. I haven't heard talk of extending the credits (in their expired form or an amended form), but that is not surprising given everything else going on in Washington D.C. From a professional standpoint, if you are planning an energy efficiency project this year, I would advise that you do NOT count on them being extended. In other words, don't count on having the tax credit to help pay for the project. If the credits are, in fact, extended, that will then be a bonus to you.

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  2. Is it better to lease or buy solar systems?

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    Replies
    1. Good question! I assume you are speaking about a solar system for your home.

      First, be certain to look at the financial aspects of a solar system for your home to see if it is financially beneficial for your to purchase a solar system. Do your own independent analysis, do not rely on what any solar company tells you. Also address a series of questions, including: How much will you supposedly save in regular electricity bills? How long for the system to pay for itself? What are expected maintenance and repair costs, as well as a realistic life expectancy of the system? Does installation void any warranty on your roof materials (shingles)? How long before your have to reroof, which will require removal of the solar system panels from the roof, followed by reattachment. How financially sound is the solar company? (Any warranty will not be good if the company goes out of business.) What is the policy of the solar company if you develop roof leaks after installation?

      After doing your research, if you decide solar is a sound financial move for you, I advise purchasing the system, NOT leasing it. Leasing incurs ongoing costs and also prohibits you from participating in any tax credit opportunities. Also, the solar lease is typically treated as a lien on your property, which must be paid off first if you want to sell your home, by either you (the seller) or any buyer. The existence of a solar lease lien can make the sale of a home very difficult.

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