An invoice is not required when completing the section for Home Energy Credit and Form 5695, Residential Energy Credits.
Just file the invoice with your other tax forms so you will have proof of the cost if ever questioned by the IRS.
Thanks! Very helpful! One more quick question - are these credits considered non-refundable? If I understand non-refundable vs refundable, then a non-refundable credit would mean that I can take it off if I owe taxes but if I'm already getting a refund, it won't increase the refund and I would have to save it for a future year when I might owe taxes. Is my understanding on that correct?
Yes, your understanding is correct. If the credit reduces your tax liability to zero for the current tax year and all of the credit was not used then the remaining credit is carried over the the following tax years until it is all used up.
@ATHiker95 wrote:a non-refundable credit would mean that I can take it off if I owe taxes but if I'm already getting a refund, it won't increase the refund
Not exactly. It is based on if your tax return 'has' income tax, not your owed/refund.
For example, let's say that line 22 of your Form 1040 shows $5000 of income tax. Then you had $6000 of tax withheld from your W-2, so you end up having a $1000 refund.
In that example, the "nonrefundable" credit reduces the $5000 of income tax, so it will increase your refund. If line 22 of your Form 1040 was zero, then the non-refundable credit could not be applied.
A non-refundable credit credit can only reduce the tax on 1040 line 22 to zero. Then you would get back any refundable credits and all your withholding. Some non refundable credits can carryover the unused part to next year.
@DoninGA wrote:
Yes, your understanding is correct. If the credit reduces your tax liability to zero for the current tax year and all of the credit was not used then the remaining credit is carried over the the following tax years until it is all used up.
Caution: The Residential Clean Energy Credit (which covers solar power, geothermal, fuel cells, wind power, and certain biomass heating) will carry forward to the next year if your tax liability is not large enough to use the entire credit the first year.
However, the Energy Efficiency Home Improvement Credit (which covers efficient furnace, heat pump, air conditioner, doors, windows, insulation, and home energy audits) does not carry forward if it can't be used in the year the items are installed.
Ah, that makes sense. In my case that line is 0, so I'm still out of luck. :). But thanks to you and Volvo Girl for the explanation! (and according to my research, non-refundable credits on the "Energy Efficient Home Improvement Credit" section can not be carried forward. )