Considering a major home renovation this fall? Historically the IRS has allowed a series of credits to help entice homeowners to move towards energy efficient or alternative energy products. However, the ever changing tax code has eliminated many of these most commonly used credits beginning for the tax year ending December 31, 2017. We will cover what credits are still available and which credits have expired.

What Credits Are Still Available?

The first and potentially the largest dollar for dollar credit available is the residential energy efficient property credit. The residential energy efficient property credit allows for a credit equal to 30 percent of the cost of qualified property, including solar electric property and solar water heaters. The credit for solar electric property and solar water heating is available for property placed in service through December 31, 2021. This credit will begin to phase out in 2020, slowly reducing the amount of allowable credit until it is completely phased out in 2021.

Unfortunately, at this point in time, this is the only energy efficient credit that did not expire as of December 31, 2016.

What Credit/Benefits Have Expired?

On the commercial side, that advantage of taking the Section 179D energy efficiency tax deduction has expired. This credit provided commercial building owners a deduction for installing qualified systems and buildings. A tax deduction of $1.80 per square foot was available for building owners who installed interior lighting, building envelopes, heating, cooling, ventilation or hot water systems that reduce the buildings total power costs by 50% or more in comparison to minimum requirements set by ASHRAE Standard 90.1-2007. A lesser deduction of sixty cents per square foot could be included in the deduction if a commercial building only partially qualified for the deduction.

On the resident side, the residential energy efficient property credit for geothermal heat pumps, small wind turbines, and fuel cell property has also expired. Geothermal heat pumps and small wind turbines qualified for a credit equal to 30 percent of the cost of the qualified property (as discussed in the previous section). Only fuel cell property was subject to a limitation, which was $500 with respect to each half kilowatt of capacity of the qualified fuel cell property. Unfortunately, this credit for alternative energy equipment has expired for property placed in service after December 31, 2016.

In addition, in the past there have been credits for qualified energy efficient improvements and for residential energy property improvements. Examples of qualified improvements are as follows:

-          Energy-efficient exterior windows, doors and skylights

-          Roofs (metal and asphalt) and roof products

-          Insulation

-          Energy-efficient heating and air conditioning systems

-          Water heaters (natural gas, propane or oil)

-          Biomass stoves

While these credits were not as advantageous as the residential energy efficient property credit, they still provided a dollar for dollar credit up to their specified limits. These limits were as follows:

-          The credit is limited to an overall lifetime limit of $500 ($200 for windows)

-          $50 for any advanced main air circulating fan

-          $150 for any qualified natural gas, propane, or oil furnace or hot water boiler

-          $300 for any item of energy-efficient building property

All of the resident credits listed above are considered nonrefundable credits. This means that if the taxpayer does not have any taxable income reported on their Federal Form 1040, the credit cannot be used to increase the current year's refund. However, if the taxpayer has a situation where they will not have any taxable income in any particular tax year, the credit can be suspended and carried forward in order to offset income that may be incurred.

The residential energy property credit, which expired at the end of December 2014, was extended for two years through December 2016 by the Protecting Americans from Tax Hikes Act of 2015. The credit had previously been extended by legislation several times. However, with the new presidential administration it is unclear on whether or not these credits will be extended as they have been in the past. If congress comes to an agreement to extend the eligibility of the credits beyond the 2016 tax year, the law may or may not be applied retroactively.

It's certainly not an easy task to stay on top of the ever-changing tax code, especially in the years following a presidential election. That is why it is can be very helpful to have a trusted tax professional to help navigate the path ahead.  Please contact your Dermody, Burke & Brown advisor if you have any questions on the status of these credits or any other financial issue for your business.

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.