Last week, we promised more details about eligible items for the two personal residence energy credits for individuals reported on Form 5695 (hope you get a charge out of our effort!)
Residential Clean Energy Property Credit. The following expenditures are eligible for the RCEPC — solar panels, solar water heaters, fuel cells, small wind energy turbines and battery storage technology (which is a new category for 2022).
Last week:Inflation Reduction Act changes credits, expenditures and limitations to energy credits
Two frequently asked questions related to this credit include:
1. Can a taxpayer include labor costs when determining the credit?
When calculating the RCEPC, a taxpayer may include the labor costs properly allocable to the onsite preparation, assembly or original installation of the qualified property and for piping or wiring to interconnect the qualifying property to the home.
2. Are roofing expenditures necessary for the installation of solar panels eligible for the RCEPC?
Generally, traditional roofing and structural components do not qualify because they primarily serve a roofing or structural function, unless they are solar roofing tiles and solar roofing shingles that serve BOTH as solar electric collectors while also handling the tasks of traditional roofing.
Finally, solar water heaters, geothermal heat pumps and battery storage technology must meet minimum energy efficiency requirements. Note that similar energy efficiency requirements also apply to the Energy Efficient Home Improvement Credit discussion following.
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Energy Efficient Home Improvement Credit. This is a more restrictive provision that begins with a 30% credit. But the dollar amount of each item mentioned below is limited with a total 2022 cap for the entire credit of $3,200.
Spending for the following is included: building envelope components, such as exterior doors, windows and insulation materials (or systems); air sealing materials (or systems); and home energy audits. Residential energy property, including central air conditioners and natural gas, propane or oil water heaters and furnaces also qualify, along with hot water boilers and improvements to or replacements of other components installed along with the building envelope components. Heat pumps, biomass stoves, and boilers are also eligible for the EEHIC. And note the allocation of labor costs is much more nuanced than the RCEPC approach. Check the Fact Sheet referenced below in Filing Tips.
Filing Tips: When reporting the above credits, read Form 5695 instructions carefully.
Also use the IRS-provided guidance on their Fact Sheet published in December (FS 2022-40) that includes several examples of the interplay of these provisions.
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Ken & Klee’s Tax Notebook — Filing season officially opened for the IRS on Jan. 23. The official deadline for businesses to send Form W-2 to employees and Form 1099-NEC (to report non-employee compensation to independent contractors) was Jan. 31. If you have not received these statements, contact the companies regarding the status of your form(s).
We noticed that the U.S. Senate is investigating the scarcity of tickets to Taylor Swift concerts. It causes us to wonder if finding an IRS agent to talk to on the phone is harder than finding tickets to a Taylor Swift concert?
Rick Klee served as the tax director at the University of Notre Dame from 1998 through August 2019. A retired CPA, Klee is a graduate of Notre Dame. You can contact him at firstname.lastname@example.org.
Ken Milani is a professor of accountancy at Notre Dame where he served as the faculty coordinator of the Notre Dame Tax Assistance Program. Contact him at email@example.com.
E-mail questions to either.