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Solar PowerEnergy Efficiency Tax Credits and Rebates


Corporate License Tax Credits
New Homes

Federal Tax Credits
New energy efficiency tax credits will allow homeowners to lower both their monthly home energy bills and their federal income taxes in 2009 as they contend with escalating winter energy prices. Using the tax credits of up to $500 to make specific energy-efficiency home improvements also can make homes more comfortable and reduce air pollution and greenhouse gas emissions.

The American Recovery and Reinvestment Act of 2009 (ARRA) extends, expands, and simplifies the federal income tax credits for homeowners who make energy efficiency home improvements. The law extends the consumer tax benefits for another year, through 2010; triples the total available tax credit from $500 to $1,500; and increases the tax credit to 30 percent of the cost of each qualified energy efficiency improvement. The law also removes the cap on geothermal heat pumps and solar water heaters through 2016.For improvements made in 2009 and 2010, you can get an income tax credit of up to $1,500 for installing efficient new windows, insulation, doors, roofs, and heating and cooling equipment in your home. However, efficiency criteria will vary dependant on when these items are "placed in service" (installed).

The following summary is provided by the Alliance to Save Energy:

Who gets it? Individuals who install specific energy-efficient home improvements.

What energy-efficient home improvements are eligible? The overall $1,500 cap can be reached in several ways with the purchase and installation of energy-efficient products that meet certain efficiency criteria:

  • Exterior windows: Includes skylights and storm windows.
  • Insulation, exterior doors, or roofs: Includes seals to limit air infiltration, such as caulk, weather stripping, and foam sealants, as well as storm doors.
  • Central air conditioner, heat pump, furnace, boiler, water heater, or biomass (e.g. corn) stove: Starting in 2009, geothermal heat pumps are instead eligible for a separate tax credit—see Section 5 below.

Section 6.4 of this document contains the detailed criteria for the products and effective dates (in general only some Energy Star products qualify). Individuals can also search for qualifying heating and cooling products on the Consortium for Energy Efficiency’s website.

In addition, to be eligible for the federal tax credits:

Windows, doors, insulation, and roofs must be expected to last at least five years (a two-year warranty is sufficient to demonstrate this).

Manufacturers can certify (in packaging or on the company’s web site) which of their products qualify for the tax credit. Retailers, contractors, and manufacturers should be able to help you determine what levels of insulation and what other products qualify.

All the improvements must be installed in or on the taxpayer’s principal residence in the United States. Condo and co-op improvements are apportioned to the owners.

A ‘patch’ to the Alternative Minimum Tax for tax year 2008 and 2009 allows this credit to be claimed by those paying the AMT. It is uncertain if this will be extended to 2010 and beyond.

How much is the credit? The tax credit amount is now 30 percent of the cost of the measures, including installation costs for heating and cooling equipment, but only product costs for windows, insulation, and other parts of the building “shell.” There is a cap on the credit amount of $1,500 for fiscal years 2009 and 2010 combined; thus the credit applies to up to $5,000 in total costs.

When is it available? The home improvements tax credit applies for improvements "placed in service" from January 1, 2009, through December 31, 2010. However, modifications to the criteria were made on products placed in service after February 17, 2009, the date of ARRA passage: products installed through February 16, 2009, are subject to the older criteria, but from February 17th onwards the new stricter criteria apply - except for exterior windows and skylights. The IRS defines "placed in service" as when the products or materials are ready and available for use – this would generally refer to the installation, not the purchase.

Exterior windows and skylights placed in service from January 1 through May 31, 2009 require only existing manufacturer certifications and Energy Star labels, as updates to criteria based on ARRA were not yet available during that timeframe. From June 1, 2009 onwards, the new, more stringent criteria apply. For more information on the June 1 window and skylight issue, see the IRS guidance and press release.

The credits were not available in 2008, but an earlier credit, with different criteria and credit amounts, was available in 2006 and 2007 (credits claimed in these past years do not count toward the $1500 cap).

What do I need to do to get the tax credit? You will need to file IRS Form 5695 with your taxes. In addition, you will need to keep at least receipts proving that you purchased the improvements and a copy of the manufacturer’s certification. Accountants and tax advisors should also be able to provide more guidance.

Guidance for Nonbusiness Energy Property Credit: IRS Notice 2009-53, issued June 1, 2009, provides guidance regarding 'nonbusiness energy property,' superseding previous IRS guidance in light of recent changes to the credits. It also clarifies some regulations related to items eligible for the credit and manufacturers' certification of eligible products. This notice also includes transition rules to provide taxpayers with guidance concerning the interaction of the effective date and timing provisions of the Energy Policy Act, the Energy Improvement and Extension Act, and the American Recovery and Reinvestment Act. The publication of this notice provides specific information that taxpayers and manufacturers can rely upon in claiming the credit or certifying eligible products.

For property placed into service before January 1, 2008, the original IRS guidance applies:

Montana Tax Credits

Individual Income Tax Credits (available to individuals only)

The Energy Conservation Installation Credit is a tax credit applied against a taxpayer's income tax liability.  Montana resident individuals can claim the credit for energy conservation investments made to a home or other building.  The credit is equal to 25% of expenses, up to a maximum credit of $500.  Two or more people may each qualify for the credit, as long as the building in which the investment is made is owned by all of the people claiming the credit.  For example, a couple who jointly own their home may each claim a credit up to $500 each or $1,000 for the couple.  To qualify for this credit, a taxpayer will have to show that the investment will reduce the waste or dissipation of energy or reduce the amount of energy required to accomplish a given amount of work.  For examples of qualifying projects and further instructions on the energy conservation credit and to calculate this credit, see Montana Form ENRG-C

The Alternative Energy System Credit is a tax credit against income tax liability for the cost of purchasing and installing an energy system in a Montana resident's principal home that uses: (1) a recognized nonfossil form of energy such as, but not limited to, solar energy, wind energy, solid waste, and organic waste; or (2) a low emission wood or biomass combustion device such as a pellet or wood stove.  The credit cannot exceed $500. Two or more people may each qualify for the credit, as long as the building in which the investment is made is owned by all of the people claiming the credit.  For example, a couple who jointly own their home may each claim a credit up to $500 each or $1,000 for the couple. Any unused balance of the credit can be carried forward and applied to future income tax liabilities for a period of four succeeding tax years.  For further instructions on the alternative energy system credit, and to calculate this credit, see Montana Form ENRG-B. 

Corporate License Tax Credits (available to corporations only)

An Energy Conservation Deduction for Corporations is available in lieu of the energy conservation credit (see below).  A corporation is allowed a deduction no greater than $1,800 for a residential building or $3,600 for a non-residential building in computing the net income for the capital investment in a building for an energy conservation purpose.

New Homes

Home builders are eligible for a $2,000 tax credit for a new, energy-efficient home that achieves 50% energy savings for heating and cooling over the 2004 International Energy Conservation Code (IECC) and supplements. At least 20% of the energy savings must come from building envelope improvements. This credit also applies to contractors of manufactured homes conforming to Federal Manufactured Home Construction and Safety Standards.

Montana homeowners can take advantage of the $500 energy conservation tax credit ($1,000 for couples) to lower your first costs when you build a home that is above the building code. Saving money on your taxes is nice, but most individuals feel the increased comfort alone is a good reason to build an energy-efficient house. Energy-efficient houses are draft-free, resulting in uniform temperatures throughout all rooms. Lower space-heating requirements over the life of the house saves you money each month and protects the homeowner against increases in the cost of energy supplies.

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