Claiming Qualified Energy-Efficient Credits for a Rental Property
Table of Contents
- Introduction
- Eligible Credits and Improvements
- Forms to Use
- Steps to Report the Expenses
- Special Considerations for Rental Properties
- Conclusion
- References
Introduction
When claiming qualified energy-efficient credits for a rental property that is a single-family home, understanding the correct forms and procedures is crucial. This guide outlines the appropriate form to use, the types of improvements that qualify, and special considerations for rental properties.
Eligible Credits and Improvements
There are two main types of energy-efficient credits available for residential properties:
Residential Energy Efficient Property Credit
This credit is for investments in renewable energy sources, such as:
- Solar Panels
- Solar Water Heaters
- Small Wind Turbines
- Geothermal Heat Pumps
- Fuel Cell Property
Nonbusiness Energy Property Credit
This credit applies to energy-efficient improvements including:
- Insulation
- Windows
- Doors
- Roofs
- Certain HVAC Systems
Forms to Use
Form 5695
Form 5695, Residential Energy Credits, is the primary form used to claim these energy-efficient credits. This form allows you to report expenses and claim credits for both the Residential Energy Efficient Property Credit and the Nonbusiness Energy Property Credit.
Other Forms
- Form 8908: Energy Efficient Home Credit, used by builders for energy-efficient homes.
- Form 7205: Related to carbon oxide sequestration credit, not typically relevant for individual property owners claiming residential energy credits.
Steps to Report the Expenses
- Complete Form 5695: Fill out the relevant sections of the form based on the types of improvements you’ve made to the rental property.
- Attach Form 5695 to Form 1040: Include Form 5695 with your individual income tax return (Form 1040).
Special Considerations for Rental Properties
If the rental property is used personally at any time during the year, you need to allocate the improvements between personal use and rental use.
- Personal-Use Portion: Claim the energy-efficient improvements for the personal-use portion on Form 5695.
- Rental Portion: For the rental portion of the property, these expenses might be considered capital improvements. Instead of claiming them as a credit, you may need to add these expenses to the basis of the property and depreciate them over time.
Conclusion
For most single-family rental properties, Form 5695 is the correct form to use when claiming qualified energy-efficient credits. It’s important to correctly allocate expenses between personal use and rental use if applicable and consult IRS guidelines or a tax professional for complex situations.