You are planning to buy an energy efficient appliance for your home. Have you ever considered the possibility of tax benefit in such a case? Yes, by purchasing an energy saving appliance, you can claim federal tax credit. However, not all energy saving devices are eligible for such a tax credit.

Hence, it is important to check whether a particular appliance even qualifies for credit or not. A manufacturer’s certification statement certifying that the product is eligible for tax credit is also required. So, whenever you are planning to replace an old appliance with a new one, you can possibly get additional benefit in form of tax credit. Deduction is available directly from the amount of personal income taxes. Deduction rates have been lowered for the year 2011.

Let us Study the Provisions for the Year 2011.

Limit:

a)    A maximum of $ 500 or 10% of the cost incurred on improvement of home can be claimed as deduction.  For Instance, if you have incurred $ 1,500 on improvements to your home, deduction that can be claimed would be $ 150 (lower of 10% or $ 500). On the other hand if cost of improvement was $ 60,000, deduction available would be $ 500 (lower of 10% or $ 500). Cap for windows has been fixed at $ 200.

b)    Deduction can be claimed only in respect of improvements made on an existing home. Another condition in this case is that the home should be the principal place of residence. With change in regulations for the year 2011, any type of new construction or rentals will not qualify for tax credit.

c)    For air conditioners, air source heat pumps, water heaters, and biomass stoves limit is $ 300.

d)    Limit for Furnace and boilers has been fixed at $150, with the condition that all furnaces and boilers must meet 95 AFUE.

e)    Limit of $50 has been fixed for advanced main air circulating fan.
Products not covered under this Scheme:

Some of the products not eligible for tax credits include ceiling fans, clothes washers & dryers, compact fluorescent light bulbs,  dishwashers, refrigerators, televisions, ovenss, toilets and so on.

Income Limit for Tax Credit:

There is no upper or lower income limit for claiming tax credit benefit under this scheme. Some tax credits can be carried forward. For Instance, tax credit can be carried forward for geothermal heat pumps, solar panels, solar water heater, fuel cells and small wind energy systems.

Non Refundable:

Tax credits under this scheme are non refundable. This means that an individual cannot claim a refund more than the amount of federal tax paid/payable by you. For Instance;  if tax liability of an individual is $ 8,500. His/Her employer has already deducted a total tax of $ 10,000. If this individual is eligible for a tax credit of $ 500, he/she would get a refund of $ 2000 as his total income tax liability was only $ 8,500. So extra tax deducted to the extent of $ 1,500 ($ 10,000 – $ 8,500) and $ 500 as tax credit would get refunded.

Form for availing Tax Credit:

To claim tax credit under this scheme, an individual is required to file form 5695. This form has to be submitted along with taxes by 15th April 2011. Even though receipts and manufacturer’s certification is not required to be attached with the form, still it is advisable to retain all the documents.