764 / What is the credit for nonbusiness energy property that may be taken against the tax?

An individual taxpayer may claim as a credit an amount equal to the sum of: (1) 10 percent of the amount paid or incurred by the taxpayer for “qualified energy efficiency improvements” (see below) installed during the taxable year; and (2) the amount of the “residential energy property expenditures” (see below) paid or incurred by the taxpayer during the taxable year.²

Qualified energy efficiency improvements means any energy efficient “building envelope component” (see below) that meets certain energy conservation criteria, if: (1) the component is installed in or on a dwelling located in the United States that is owned and used by the taxpayer as his principal residence; (2) original use of the component commences with the taxpayer; and (3) the component reasonably can be expected to remain in use for at least five years.³ The term “building envelope component” means: (1) any insulation material or system specifically and primarily designed to reduce the heat loss or gain of a dwelling when installed in or on the dwelling; (2) exterior windows, including skylights; (3) exterior doors; and (4) metal roofs if the roof has appropriate coatings specifically and primarily designed to reduce the heat gain of the dwelling.⁴

In guidance, the Service clarified that a component will be treated as reasonably expected to remain in use for at least five years if the manufacturer offers, at no extra charge, at least a two-year warranty providing for repair or replacement of the component in the event of a defect in materials or workmanship. However, if the manufacturer does not offer such a warranty, all relevant facts and circumstances are taken into account in determining whether the component reasonably can be expected to remain in use for at least five years. The Service also confirmed that a taxpayer may rely on a manufacturer’s certification that a building envelope component is an “eligible building envelope component.” A taxpayer is not required to attach the certification to the tax return on which the credit is claimed, but should retain the certification statement as part of his records. In addition, the Service stated that a credit is allowed only for amounts paid or incurred to purchase the components, not for the onsite preparation, assembly, or original installation of the components.⁵