Claiming the credit for residential energy-efficient property.

• Author: Ellentuck, Albert B.

Taxpayers can claim a residential energy-efficient property (REEP) tax credit for 30% of the cost of eligible solar water heaters, solar electricity property, fuel cell property, small wind energy property, and geothermal heat pump property (Sec. 25D).

Through Dec. 31, 2016, an individual taxpayer will be allowed a tax credit in an amount equal to the sum of (Sec. 25D):

1. 30% of the qualified solar electric property expenditures made by the taxpayer during the tax year;

2. 30% of the qualified solar water heating property expenditures made by the taxpayer during the tax year;

3. 30% of the qualified fuel cell property expenditures made by the taxpayer during the tax year;

4. 30% of the qualified small wind energy property expenditures made by the taxpayer during the tax year; and

5. 30% of the qualified geothermal heat pump property expenditures made by the taxpayer during the tax year.

   Credit Limitations

   The credit allowed for any tax year with respect to qualified fuel cell property cannot exceed $500 with respect to each half kilowatt of capacity of qualified fuel cell property (as defined in Sec. 48(c) (1)) for which qualified fuel cell property expenditures are made. However, no credit will be allowed unless the property is certified for performance by the nonprofit Solar Rating Certification Corp. or a comparable entity endorsed by the state in which the property is installed (Sec. 25D(b)(2)).

   Tax Liability Limitation and Carryover of Unused Credit

   The REEP credit is a nonrefundable personal credit. The total amount of nonrefundable personal credits cannot exceed the sum of (1) the taxpayer's regular tax liability, reduced by any foreign tax credit allowable, and (2) alternative minimum tax (AMT) for the tax year (Sec. 26(a)). This means that the credit can be used to offset both regular tax and AMT. When the credit exceeds this limitation, the excess can be carried forward to the succeeding tax year (Sec. 25D(c)).

   Qualified Expenditures

   For the residential energy-efficient property credit, qualified expenditures include the following (Sec. 25D(d)):

1. A qualified solar water heating property expenditure for property to heat water for use in a dwelling unit located in the United States and used as a residence by the taxpayer, if at least half of the energy used by the property for that purpose is derived from the sun. To qualify for the credit, this expenditure must be properly certified by an entity endorsed by the government of the state...