If your home-renovation project includes the installation of energy-efficient equipment, a tax credit may be available to you.
Renovating your home can be an expensive endeavor, especially since you can't claim a federal tax deduction to defray the costs. However, if your home-renovation projects include the installation of energy-generating equipment, then you may get some relief by claiming a tax credit. Even if you don't qualify, at least you can reduce your taxable gain when you sell the home by the cost of the renovations. Remember to file away and keep all receipts.
Alternative energy renovations
The residential energy-efficient property credit, intended to stimulate your investment in alternative energy equipment, allows you to include an unlimited amount of costs when calculating the credit. You can claim the credit for renovations you make to any home you own that you use for personal purposes, and even ones under construction.
When calculating the credit, include a percentage of the purchase price and the cost of labor for installation. Equipment that qualifies for the credit includes solar-electric panels, solar hot water heaters, geothermal heat pumps and wind turbines. The only purchases that have a maximum credit limitation are the costs paid to purchase and install certain fuel cells. As long as the manufacturer provides a statement claiming the equipment will improve the energy efficiency of your home, this is sufficient for you to claim the credit.
Claiming the credits
When you are ready to prepare your tax return, complete and attach IRS Form 5695 to claim the credit. Since these are all nonrefundable credits, their maximum savings is limited to the amount of tax you actually owe for the year.
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