Energy property credit (5695) lifetime limit and separate/joint returns

[MV80]

Suppose one spouse claimed their maximum $200 for windows in 2017 when they filed separate tax returns. The spouses are filing a joint return in 2020. Is there a room for a deduction again if the other spouse has never claimed the credit?

And what about the opposite case? If the spouses claimed their maximum credit of $200 in their 2017 joint return, can they claim some amount again in their 2020 separate returns?

[DMarkM1]

The limit is based on the combination of the home and the taxpayer.  If married and lived in the same home then only one credit is available whether on a separate or joint return. 

So in example situation 1, the taxpayer and spouse lived in one home in 2017 and one spouse claimed the energy credit for the home. The credit has been used for that home by the taxpayers. 

For situation 2, the same concept applies.  The taxpayer and spouse lived in the same home in 2017 and claimed the energy credit for that home, then the credit has been used for the taxpayers on that home.  

If there were two homes involved then another credit is available for the second home.

[MV80]

Thank you for the clarification. The second scenario was a hypothetical one to be possibly applied in the future. However, the first scenario is real and two different homes are involved (the first one was sold in the meantime). Therefore the credit can be claimed again.

[JohnW152]

That's not correct.  There's a combined credit limit of $200 for windows for all tax years

after 2005.

Please see Window Expense Worksheet—Line 19f in the Instructions for Form 5695 for the limitation computation.

[MV80]

OK, I assume "combined" here means irrespective of the property. But what about the other part of the above answer which was the main topic of the question? How does the limit apply when switching from separate to joint filing or vice versa?

[JohnW152]

If one spouse has already maxed out the credit while filing single, it can't be taken again when filing jointly.  The same goes for initially claiming the credit while filing jointly, and later wanting to claim the credit filing single.

See the Lifetime Limitation Worksheet—Line 18 in the Instructions for Form 5695.  It makes no distinction as to a taxpayer's current or previous filing status, and uses the limitation amount from the worksheet on the form, itself.

[Opus 17 · Accepted solution]

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@JohnW152 wrote:

If one spouse has already maxed out the credit while filing single, it can't be taken again when filing jointly.  The same goes for initially claiming the credit while filing jointly, and later wanting to claim the credit filing single.

See the Lifetime Limitation Worksheet—Line 18 in the Instructions for Form 5695.  It makes no distinction as to a taxpayer's current or previous filing status, and uses the limitation amount from the worksheet on the form, itself.

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The law was written in such a way that if either spouse used their limit before they were married, then it counts against both spouses on a joint return.  It might be possible for spouse #2 to claim the credit if they filed as married filing separately, if spouse #1 had previously claimed the max credit.  But filing MFS has many drawbacks and you may lose more than you gain.

The law was also written in such a way that if the home is owned by two unmarried people who use it as their main home, each owner can claim the same maximum on the same improvements.  In other words, if two people who are "shacking up" and buy a home together, also buy new windows, they each get $200.

Blame Congress.  Whether this was intentional or on purpose, that's how the law was written, and they've never taken steps to change it to make it what we might consider as more "sensible".