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Residential Energy Credits

Forum|Forum|5 years ago
May 3, 2021
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I qualify for the residential energy credits for energy efficient windows and installation. Window installation was completed in 2020 and we paid a partial amount in 2020. However, since the entire job included new doors, that were not installed until 2021, the final payment was not made until 2021. The final payment included a partial amount for windows and the rest for the doors. Do we claim the initial 2020 payment or do we have to wait for next years tax return?

Best answer by Opus 17

This one is tricky, but the expert @HelenC12 is mostly right.

1. For most tax items, you claim the expense when you actually pay it.

2. However, the energy credits are slightly different. In this case, the credit is for "10 percent of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year" (emphasis added). So you could claim the credit for items that were installed in 2020 (the cost was incurred) even if you didn't actually pay the cost until 2021.

3. But in your case, the doors were not actually installed until 2021. So you can include the entire cost of the windows that were installed in 2020 (even though they weren't fully paid for until 2021). But you can't include anything for the doors, because they weren't installed until 2021.

4. As far as I know, this credit expired 12/31/2020. Congress has made a (bad) habit of extending the credit at the last minute in 1 or 2-year increments. So pay attention at tax time for 2021. The doors may be eligible if Congress passes another extension in time.

H

HelenC12

Claim what you paid in 2020 on your 2020 income tax return and claim the final payment on your 2021 income tax return. Most individuals are cash basis, calendar year taxpayers. Under the cash method, expenses are not counted until they are actually paid.

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O

Opus 17Answer

Employee

This one is tricky, but the expert @HelenC12 is mostly right.

1. For most tax items, you claim the expense when you actually pay it.

2. However, the energy credits are slightly different. In this case, the credit is for "10 percent of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year" (emphasis added). So you could claim the credit for items that were installed in 2020 (the cost was incurred) even if you didn't actually pay the cost until 2021.

3. But in your case, the doors were not actually installed until 2021. So you can include the entire cost of the windows that were installed in 2020 (even though they weren't fully paid for until 2021). But you can't include anything for the doors, because they weren't installed until 2021.

4. As far as I know, this credit expired 12/31/2020. Congress has made a (bad) habit of extending the credit at the last minute in 1 or 2-year increments. So pay attention at tax time for 2021. The doors may be eligible if Congress passes another extension in time.

8

8403marsatAuthor

Thanks so much for your response. My understanding is that the installation cost can be included if the installation of the windows is totally complete. Is this correct?

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Opus 17

Employee

@8403marsat wrote:

Thanks so much for your response. My understanding is that the installation cost can be included if the installation of the windows is totally complete. Is this correct?

No, for windows and doors, the credit is limited to the actual cost of the items, and does not include "any amounts paid for the onsite preparation, assembly, or original installation of the components." If your invoice does not specify this, you will need some kind of reasonable proof if you are unlucky enough to get audited.

See the instructions for line 19a-19d on form 5695 here,

https://www.irs.gov/pub/irs-pdf/i5695.pdf

And just so we are clear, doors and windows must meet or exceed the requirements of Energy Star version 6.0.