The American Recovery and Reinvestment Act of 2009 included a number of incentives for energy-efficient upgrades for both individuals and businesses via a number of tax credits. The Residential Energy Property Credit covered new insulation in residences installed by December 31, 2010. While there is no specific tax credit for insulating rental properties, you can still write off the cost of new insulation. Even if you can't take a write-off, you'll definitely save money with smaller energy bills.
Residential Energy Property Credit
This credit allows taxpayers who installed insulation in an existing residence by the end of 2010, up to a maximum of $1,500 in tax credits—a dollar-for-dollar reduction in their tax bill for the year. While the credit is not available for improvements made after that date, if you didn't take a credit you were entitled to during 2009 and 2010, you can file an amended return and get any additional refund due to you. The credit applies only to insulation or materials designed to reduce heat loss or gain and meeting specific criteria established by the 2009 International Energy Conservation Code.
Other Tax Breaks for Residential Property
Don't give up on getting a write-off for your new insulation even if you missed the 2010 cut-off date. The credit may be renewed for additional years, so choose materials which meet the specific requirements. Your building supply store or contractor can confirm eligibility for you. Keep the receipts and add the cost of the improvements to the basis of your home when you sell it. You'll have smaller capital gains and very possibly a smaller tax bill.
Rental Property Write-offs
Unfortunately, Uncle Sam doesn't have any specific tax credits for insulating rental property, but you can still take the tax break from depreciating the insulation as you would with any improvement made to rental property. The IRS requires you to report the insulation as a separate property and calculate depreciation on it starting the year installed. Recovery period for insulation is 27.5 years, since it is considered good for the life of the structure.
Which Forms to Use
If you missed claiming the Residential Energy Property Credit during 2009 or 2010, you can file an amended federal tax return on Form 1040X. Fill in Form 5695 (Residential Energy Credits) to report the amount of the credit. If you insulated a rental property, report the improvement on Form 4562, Part III for new property placed into service. Consult IRS Publication 946 (How to Depreciate Property) for additional depreciation tables.
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