It takes a lot of energy to figure out if you qualify for this tax credit
I wasn’t thinking about tax credits when my 12-year-old water heater went on the fritz last fall. I was thinking about a hot shower.
I called the plumber. A few sticky days and $1,000 later, I had hot water.
Now, like millions of other consumers, I faced a tax challenge.
The federal government decided to reward taxpayers who made their homes more energy efficient in 2009 by creating a series of tax credits for those who replaced furnaces, water heaters, air conditioners, insulation, doors, roofs, skylights and windows with more energy-efficient models.
But trying to figure out whether the things you bought qualify for one of these rewards is bedeviling to even the sagest of experts.
I asked Mark Luscombe, principal tax analyst with CCH Inc. and one of the nation’s most careful and quoted tax authorities, to explain what equipment qualifies. Luscombe responded by reading a long paragraph, loaded with references to U-factors and BTUs, out of an IRS technical ruling.
I was confused. The words were in English and there were lots of them, but that was about the limit of my comprehension. When I asked Luscombe what it all meant, he paused and chuckled.
“I have no idea,” he said.
I’ll save you details about the dozens of phone calls that ensued and cut to the crux of the matter: If you completed your energy improvements early in the year, you’re (almost) home free.
Until June 1, 2009, you could rely on the label or the manufacturer’s assurance that the equipment you bought met the requirements of the government’s Energy Star program. That could land you a tax credit that amounts to 30% of the cost of buying and, sometimes, installing this equipment.
But, if you bought later in the year, like I did -- particularly if you acted without thinking about the credit when buying -- you’ll earn every dollar of that credit in sweat equity. You’re going to have to go on something of a treasure hunt to figure out whether the stuff you bought qualifies for the credit.
“It’s very complex,” acknowledged Karen Schneider, manager for the government’s Energy Star website, which aims to explain the tax credits.
“It’s very hard for a consumer to know the information they’re supposed to know to do it right,” she added.
Part of what makes the process complicated is that the rules changed a couple of times during the year.
The tax law had no 2009 energy credits until Feb. 17, when President Obama signed the American Recovery and Reinvestment Act, otherwise known as the economic stimulus bill. In that bill, Congress revived a series of energy tax incentives that had expired at the end of 2007.
Instead of making the tax credits effective on the date the law was signed, Congress made the credits retroactive to the beginning of 2009. But the law also tightened the requirements to get the credits.
Because Congress had telegraphed its intention to revive the 2007 credits, there was a debate about whether it was fair to tighten the rules without warning the people who bought their storm doors in January. Thus lawmakers said the people who bought by Feb. 17 could be governed by the 2007 rules.
Then the window people complained, Energy Star’s Schneider said.
Assuming that the revived energy credits would be good for business, window companies had built up inventories of sashes and sliding glass doors that would meet those old requirements. The new requirements were stricter, leaving the companies with warehouses full of suddenly unattractive panes.
Tax authorities responded with a ruling that said the old rules would apply to windows through May, giving these manufacturers a chance to unload their inventory.
Naturally that sort of favoritism didn’t play well with manufacturers of furnaces, water heaters, air conditioners, roofing material and insulation, which had inventory too.
By the time the IRS printed tax forms and instructions in late 2009, the agency had changed the rules to give people who bought any energy-efficient equipment before June the ability to take a credit as long as they were willing to say they had “relied on the manufacturer’s certification issued before Feb. 19, 2008, that the purchases met the standards in effect before Feb. 18, 2009.”
How you would know when the manufacturer issued its certification is a mystery, Schneider said. But if you bought before June last year, you have a loophole. Go with it.
If you bought after that, you’ll have to wade through standards peppered with references to U-factors, BTUs, thermal efficiency and the like. These are not details that are listed on your window or your water heater.
To figure out if your equipment meets the requirements, you need to get the name of the manufacturer and the model number. You can find this either on the unit itself, on your invoice or you can get it from your contractor.
With that information, you can go to the manufacturer’s website. Many manufacturers prominently advertise the models that qualify for the credits on their home pages, said Mark Petrarca, senior vice president of public affairs for A.O. Smith, the South Carolina company that made my water heater.
What if your manufacturer doesn’t? Check out www.energystar.gov. Near the bottom of the home page, there’s a link for “Tax Credits for Energy Efficiency.” Click on it.
This page is split into two sections -- one for the residential energy credits we’ve been talking about, and a second for people who revamped their homes to add solar energy systems, geothermal heat pumps or wind turbines.
Unless you went hog-wild on energy efficiency last year, you can skip that second section and look up the equipment you bought in the first section.
So if you replaced a gas water heater, you’d click on that link to find out that your heater would need to have an “energy factor” of at least 0.82 or a “thermal efficiency rating” of at least 90%. Armed with that information, you can return to your manufacturer’s website and look up “spec sheets” for your purchase, which divulge all those technical factoids.
If your appliance or other improvement does qualify for the break, you’re not done. Now you need to fill out IRS Form 5695 to claim your credit. That form should be filed with your tax return. You’ll need to keep the receipts for the equipment you bought, as well as the certification that it meets the energy guidelines in your tax records, in case you get audited.
Me? My water heater didn’t qualify. Luckily, I can drown my sorrows in a hot shower.
