Nonbusiness Energy Property Credit / Residential Energy Efficient Property Credit

[prad00]

hi 

Wanted to check the following as it relates to Energy credit for 2021 TY.

If I have received a Solar electric system tax credit in 2016 amounting >$500 will I still be eligible for getting complete Nonbusiness energy property credit ( Tankless water heater installed in 2021)  ?

While filling the details through Turbo Tax , it indicates I can get up-to 10% of the installation of Tankless water heater,  however it is maxed out at $150 , though allowed max is $500 ( Tankless water heater +installation costed around $5400). Not sure if this is due to 2016 Credit I have rxvd for installing Solar electric system or due to my 2021 tax liability.

Thanks in advance for any pointers on this.  

[ColeenD3]

Yes, there is a lifetime limit.

Q. Who qualifies to claim a residential energy property credit? Are there limitations? (updated April 27, 2021)

A. You may be able to take these credits if you made energy saving improvements to your principal residence during the taxable year. In 2018, 2019 2020, and 2021 the residential energy property credit is limited to an overall lifetime credit limit of $500 ($200 lifetime limit for windows). There are also other individual credit limitations:

• $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

The residential energy property credit is nonrefundable. A nonrefundable tax credit allows taxpayers to lower their tax liability to zero, but not below zero.

[prad00]

thanks for the response @ColeenD3 . Is this understanding correct based on your response?

1) Residential Energy Efficient Property Credit ( like Solar electric system) is separate from Nonbusiness Energy Property Credit (like tankless water heater). The credit from one does not accrue towards the other.

2) $150 is the max Nonbusiness Energy Property Credit I can get for installing Tankless water heater ( natural gas based hot water boiler) ?

3) Once I avail $150 for nonbusiness energy property credit , I can only avail $350 [$50 for any advanced main air circulating fan, $300 for any item of energy-efficient building property) in future tax years.

I did not understand what this means can you please clarify "The residential energy property credit is nonrefundable. A nonrefundable tax credit allows taxpayers to lower their tax liability to zero, but not below zero."

thanks again.

[ColeenD3]

A water heater is residential energy property.

Q. What improvements qualify for the residential energy property credit for homeowners? (updated April 27, 2021)

A. In 2018, 2019,  2020, and 2021, an individual may claim a credit for (1) 10% of the cost of qualified energy efficiency improvements and (2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during the taxable year (subject to the overall credit limit of $500).

Qualified energy efficiency improvements include the following qualifying products:

• Energy-efficient exterior windows, doors, and skylights
• Roofs (metal and asphalt) and roof products
• Insulation

Residential energy property expenditures include the following qualifying products:

• Energy-efficient heating and air conditioning systems
• Water heaters (natural gas, propane, or oil)
• Biomass stoves (qualified biomass fuel property expenditures paid or incurred in taxable years beginning after December 31, 2020, are now part of the residential energy efficient property credit for alternative energy equipment.)

Residential Energy

[prad00]

@ColeenD3 thanks again for the response. In reading Residential Energy  ( Q#1 and Q#4) I have one more question can you please confirm credit for "residential energy property " for installation of solar equipment ( in my case i got this credit in 2016 amounting to 30% of my solar equipment )  is different than credit for improvements of "residential energy property " the one I am getting now ( for tankless water heater amounting to a credit of $150).?

[ColeenD3]

There is only one Residential Energy Credit. It has changed and evolved over the years as more items were added and subtracted.

Residential energy efficient property is under § 25D of the Code.

Energy credit

[prad00]

The pointed references in Energy credit   Residential Energy  ( Q#1 and Q#4) are little confusing to say the least.

I get it, the evolution of this energy credit and the terminologies that are used for 25C and 25D has made it more convoluted.

Any way coming back to my original question , I read the above links as , 2016 solar electric system installation credit and energy improvements credit for 2021 are separate,  the way it is treated towards overall life time energy credit limit of $500.

[AnnetteB6 · Accepted solution]

Yes, the solar credit you claimed in 2016 is separate from the Residential Energy Credit you are claiming from the installation of your tankless water heater.

The solar credit is not the factor that is limiting the credit on your 2021 return.  Instead, the $150 limit is being applied because of the type of improvement you made in 2021.  

Your solar credit does not apply toward the $500 lifetime limit on the Residential Energy Credit, but the $150 credit you are claiming for the tankless water heater does.  

@prad00

[prad00]

thanks @AnnetteB6 , this clarified my understanding further!