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Energy Tax Credits FAQs
Q. Do the federal and state energy conservation credits apply to a second home or rental unit?
A. The federal credit for expenses like energy efficient windows, doors, heating and cooling systems, and insulation, that are often called “energy conservation” credits, cannot be claimed for improvements to second homes or rentals. The improvements qualify for the federal credit only if made to a taxpayer’s “principal residence” or “main home.”
Montana’s energy conservation credit may be claimed by Montana residents for improvements to second homes and residential rentals. Montana’s credit applies more broadly than the federal credit to “dwellings,” or structures that are habitually occupied.
Q. Do the federal and state alternative energy systems credits apply to a second home or rental unit?
A. The federal alternative energy credits (for geothermal heat pumps, solar hot water heaters, solar panels, small wind energy systems, fuel cells, etc.) are not limited to principal residences. Taxpayers installing alternative energy systems in second homes or rentals may qualify for the federal credits.
Montana’s alternative energy generation and geothermal systems credits cannot be claimed for systems installed in second homes or rentals. With one exception, the qualifying property must be installed by a Montana resident in their principal residence. The exception is the installation of a geothermal system as part of new construction – the contractor may claim the geothermal credit for a residence constructed for sale.
Q. Can credits be claimed for both existing homes and for new construction?
A. Generally, improvements to existing homes qualify for both the federal and the Montana credits.
New construction – federal credits: Geothermal heat pumps, photovoltaics (solar panels), solar water heaters, small wind energy systems, and fuel cells installed in a new home qualify for the federal alternative energy system credit. The federal energy conservation credit is not allowed for windows, doors, insulation, roofs, HVAC, non-solar water heaters, or biomass stoves installed in new construction.
Separate federal credits for home builders that were enacted by the Energy Policy Act of 2005 and extended by the Emergency Economic Stabilization Act of 2008 were not affected by ARRA and remain in effect. They are discussed at http://www.energystar.gov/index.cfm?c=products.pr_tax_credits#s6.
New construction – Montana credits: In general, alternative energy systems installed in a new home qualify for Montana’s alternative energy credits. Unlike the federal credit, however, Montana’s alternative energy credit applies to qualified wood and biomass stoves installed in new construction.
Whereas the federal provisions simply disallow the energy conservation credit for new construction, Montana’s energy conservation credit is allowed for new construction but only for products that meet or exceed the specification required by Administrative Rule of Montana 42.4.209. The required ratings can also be viewed on the Comparison of Tax Credits for Homeowners chart.
Q. Are labor and installation costs included in the amount for which I can claim a credit?
A. Amounts paid for assembly or installation of windows, doors, roofing, or insulation do not qualify for the federal energy conservation credit.
Installation costs are included in all of the Montana credits.
Q. How are the federal and state energy conservation dollar limits different?
A. The federal energy conservation credits are subject to a total limit of $1,500 for 2009 and 2010. All property in both years is counted in reaching the $1,500 limit.
Montana has an annual energy conservation credit limit of $500 per taxpayer per property.
Q. Are there federal and state differences for taxpayers who file joint returns?
A. Yes.
For the federal energy conservation credit, the $1,500 aggregate limit for 2009 and 2010 applies to taxpayers filing a joint return – the limit does not double to $3,000. If spouses file separate federal returns and make separate qualifying purchases, however, the $1,500 limit then applies to each of them.
Montana’s $500 per taxpayer/per property annual energy conservation limit applies to each taxpayer making qualifying purchases, whether or not they file a joint or separate return. A married couple who file a joint Montana income tax return is counted as two taxpayers.
Q. I heard that some of the federal energy-related credits have changed or expired. Does this affect Montana's energy-related credits?
A. No. Montana's energy-related credits are implemented by the Montana Code Annotated. Therefore, even if federal energy-related credits change or expire, Montana's will remain intact until changed or repealed by Montana law.