what's new

August 15, 2005

This explains the new credit for residential energy efficient property, added by the Energy Tax Incentives Act of 2005.

The residential energy efficient property credit is a credit for 30% of the purchase price of property used to generate solar electricity, solar water heating property, and property that produces electricity using an efficient electrochemical process.

To be eligible for the residential energy efficient property credit, you must meet the following requirements: (1) you must have made expenditures for qualified photovoltaic property, qualified solar water heating property, or qualified fuel cell power plants; (2) the property must be placed in service in 2005 or 2006, in taxable years ending after 2005; (3) the property cannot be used for heating swimming pools or hot tubs; and (4) the property must be used to generate energy for a dwelling unit in the United States that you use as your residence. Expenditures made for onsite preparation, assembly, and original installation of qualified property are considered as expenditures for qualified property and, therefore, are eligible for the credit. Expenditures made from subsidized energy financing, on the other hand, are not eligible for the credit.

Qualified photovoltaic property is property that uses solar energy to generate electricity for use in your residence. Qualified solar water heating property is property used to heat water for use in your residence, if at least half of the energy that it uses to heat the water is derived from the sun. Qualified solar water heating property must be certified for performance by the Solar Rating Certification Corporation or a comparable state-endorsed entity. A qualified fuel cell power plant is an integrated system consisting of a fuel cell stack assembly and associated balance of plant components that: (1) converts a fuel into electricity using electrochemical means; (2) has an electricity-only generation efficiency of greater than 30%; and (3) generates at least 0.5 kilowatts of electricity. A qualified fuel cell power plant must be installed on or in connection with your principal residence.

The amount of the credit that you may claim is 30% of your total payments during the taxable year for qualified photovoltaic property, qualified solar water heating property, and qualified fuel cell power plants, subject to the following yearly dollar limits. However, you may claim no more than $2,000 for qualified photovoltaic property, $2,000 for qualified solar water heating property, and $500 for each one-half kilowatt of capacity of qualified fuel cell property for any tax year.

There are two additional limits on the amount of the credit. First, if more than 20% of the qualified property is used for business purposes, then you may claim the credit only for expenditures for the portion of the property that is used for nonbusiness purposes. Second, the credit is nonrefundable, which means that the amount of the credit that you are allowed to claim is limited to the amount of your tax liability. However, any credit amount that you are not allowed to claim because of this limitation may be carried forward to the next taxable year.

If two or more persons used your home as a residence during the year and made expenditures that qualify for the credit, then each resident is entitled to a share of the credit amount for each type of qualified property based on his/her proportionate share of the expenditures for that type of qualified property. If you own and live in a condominium or cooperative, you may be eligible for a credit for your proportionate share of the condominium association's or cooperative housing corporation's qualifying expenditures.

The increase in your basis in your home that otherwise would result from your purchase of qualified property is reduced by the amount of the credit allowed with respect to that qualified property.

The residential energy efficient property credit will not be available for property placed in service after 2007.

I hope this information is beneficial to you. Please call our office if you have any further questions.

2005 C J M cjmalleyaccountancycorp