FAQS - Energy Related Tax Relief
Energy Conservation Installation Credit (Form ENRG-C)
1. What is considered a capital investment for “energy conservation purposes”?
A capital investment is defined in the law as any materials or equipment that you purchase and install in a building that results in either:
- Reducing the waste or dissipation of energy; or
- Reducing the amount of energy required to accomplish a given quantity of work.
This means taking steps to make your home or building use energy more efficiently. It does not mean simply switching to an energy source that is cheaper or free. Investments of this nature may qualify for the Alternative Energy System credit.
2. What are some examples of a capital investment that I can make to a building that will qualify for the energy conservation installation credit?
In order to qualify for this credit your investment has to be made to the building itself. The following investments qualify for the credit:
- Insulation in existing buildings of floors, walls, ceilings, and roofs
- Insulation of pipes and ducts located in nonheated areas and insulation of hot-water heaters and tanks
- Windows that result in reduction of energy consumption
- Insulated exterior doors
- Caulking and weather stripping
- Devices which limit the flow of hot-water from shower heads and lavatories
- Heat recovery ventilators
- Glass fireplace doors
- Caulking and weather stripping of an existing structure
- Insulating exterior doors of an existing structure
- Installing glass fireplace doors on existing fireplaces
- Installing a programmable thermostat
- Replacing incandescent light fixtures with light fixtures of a more efficient type, such as those with electronic ballast and compact or linear fluorescent lamps
- Installing lighting controls with cut-off switches that permit the selective use of lights
- The installation of devices that limit the flow of hot water from shower heads and lavatories
- Insulation in the floors, walls, ceilings and roofs of a new building to the extent exceeds the requirements of the 2003 International Energy Conservation Code (IECC) with Montana amendments
- Installing storm windows or storm doors to existing structures
- Installing exhaust fans to reduce air conditioning requirements
- Installation and replacement of domestic water heaters, heating or cooling system in a building so long as the new system uses energy more efficiently than the previous system.
3. What are some examples of investments that will NOT qualify for the energy conservation installation credit?
In general, any investment for repairs or routine maintenance to a building or residence will not qualify. The following are examples of expenditures that will NOT qualify for the credit. This list is also not intended to be an all inclusive list, but a guideline to assist you in determining if your investment qualifies.
- Installing carpet
- Installing an insulated garage door in an unheated garage
- Re-shingling or repairing a roof
- Paint
- Replacing or repairing a failing foundation
- Siding with little or no insulation
- Portable air conditioners
- Space heaters
- Household appliances such as ENERGY STAR washers, dryers and refrigerators
4. I am constructing a new home. Can I claim the energy conservation installation credit?
Yes you can. For new buildings, eligible investments are energy saving materials or systems that exceed the 2003 International Energy Conservation Code requirements for Montana or established standards of construction. The extra costs associated with building the home above energy code minimum requirements are considered eligible investments for this tax credit. Your investment that only meets the requirements of the 2003 IECC is not an eligible investment for purposes of the credit. For example, if you install an ENERGY STAR qualified furnace in a new home construction project, the incremental cost of the qualified furnace and its installation cost that exceed the cost of a conventional furnace that is required by IECC will qualify for the energy conservation credit.
5. My spouse and I replaced the windows and doors in our home with those that will qualify us for the energy conservation installation credit. Are we both entitled to the credit?
Yes you are. To the extent that your energy conservation investment(s) exceeded $4,000 and both you and your spouse own the home, you are each entitled to a $500 energy conservation credit. If you are filing jointly with your spouse, you may claim $1,000 as your credit. If you are filing separately with your spouse, each spouse’s is limited to the smaller of $500 or 25% of his or her investment.
6. I qualify for the energy conservation installationcredit this year but am unable to claim the full amount of my credit because my income tax liability is less than $500. Can I carry my unused credit forward?
No you cannot. The credit is a nonrefundable single year credit. You cannot carry forward any unused portion of your credit to succeeding tax years.
7. I ordered new windows and exterior doors in my home. I paid half of the total price in 2007 and the balance will be paid when the installation is completed in 2008. Does my down payment qualify for the energy conservation installation credit?
The credit is available in tax year 2008 only (the year when the installation is completed). You can include the down payment expended in 2007 to determine the total cost of your expenditures for the credit.
8. I purchased and completed installation of an ENERGY STAR qualifying furnace during October 2006. Half of the total price of the furnace was paid for in 2006 and the other half in 2007. Do I qualify for the energy conservation installation credit for both 2006 and 2007?
The credit is available in tax year 2006 only (the year when the installation is completed). You are not entitled to an additional credit for the second half payment made in 2007.
9. I installed new windows and exterior doors in my home for a total expenditure of $10,000. My 25% energy conservation credit is $2,500. Am I eligible for the full $2,500 credit?
No you are not. Your credit is limited to the smaller of $500 or 25% of the qualified investments made during the tax year. You are not eligible to carry any of the excess credit forward to succeeding tax years.
10. What type of records should I retain to document my eligible expenses for the energy conservation installation credit?
You should retain invoices, sales agreements or receipts that document work done and the equipment installed. Your records should clearly state the equipment manufacturer, make and model number of any installed heating and cooling systems, windows, doors, light fixtures, thermostats, etc. that will determine the qualifications for this credit.
Geothermal Systems Credit (Form ENRG-A)
1. What is a geothermal system?
A geothermal system is a system that transfers energy either from the ground, by way of a closed loop, or from ground water, by way of an open loop, for the purpose of heating or cooling a residential building.
2. What costs are included in the installation cost of my geothermal system?
Your installation costs include the cost of:
- Trenching, well drilling, casing, and downhole heat exchangers
- Piping, control devices, and pumps that move heat from the earth to heat or cool the building
- Ground source or ground coupled heat pumps
- Liquid-to-air heat exchanger, ductwork, and fans installed with a ground heat well that pumps heat from a well into a building
- Design and labor
3. Who qualifies for the geothermal system credit?
For individuals, the credit is available only to a Montana resident who completes the installation of a geothermal system in his or her principal dwelling or home. For businesses, the credit is available for installing a geothermal system while constructing a new Montana residence on “spec.” Only one credit is allowed for a residence so the builder and owner of a new residence with a qualifying geothermal system cannot both claim the credit.
4. I am an individual and purchased a newly constructed home with a geothermal system installed by the builder. Am I entitled to the credit?
No. You did not directly pay the installation costs of the system so you are not entitled to the credit. In this situation, the builder is entitled to the credit.
5. I have installed a geothermal system in my principal home this year but am unable to claim the full amount of my geothermal credit because my income tax liability is less than $1,500. Can I carry my unused credit forward?
Yes. This credit is a nonrefundable carryover credit in which you can carry forward any unused portion for seven succeeding years.
6. My spouse and I both own our primary home. Can we both qualify for the geothermal system credit?
Yes, you can, but the credit is limited to $1,500 for the installation of a geothermal system in your principal home. You may allocate the credit between you and your spouse in any manner you choose.
Alternative Energy Systems Credit (Form ENRG-B)
1. What is a recognized nonfossil form of energy generation?
A recognized nonfossil form of energy generation means system that captures energy or converts energy sources into usable sources, including electricity, by using:
- solar energy, inclusing passive solar systems
- wind
- solid waste
- the decomposition of organic waste
- geothermal
- fuel cells that do not require hydrocarbon fuel; or
- a system that produces electric power from biomass or solid wood wastes, or
- a small system that uses water power by means of an impoundment that is not over 20 acres in surface area.
2. What is a low-emission wood or biomass combustion device?
A low-emission wood or biomass combustion device means a wood-burning appliance that:
- is certified by the U.S. environmental protection agency pursuant to 40 CFR 60.53, or
- uses wood pellets as its primary source of fuel.
3. My spouse and I both own our primary home. Can we both qualify for the alternative energy system credit?
If you both paid for the installation of any one alternative energy system and the total cost was $1,000 or more, you can each claim up to $500. If the cost of the system was less than $1,000, you may allocate the credit between you and your spouse but neither spouse can claim more than $500.
4. I have installed a wood burning stove in my principal home this year but am unable to claim the full amount of my alternative energy system credit because my income tax liability is less than $500. Can I carry my unused credit forward?
Yes. This credit is a nonrefundable carryover credit in which you can carry forward any unused portion for four succeeding years.
