Residential Energy Credits-Non owned property

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plannerman
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Residential Energy Credits-Non owned property

Post by plannerman » Fri Mar 30, 2018 6:07 am

We recently moved into an individual cottage in a Continuing Care Retirement Community (CCRC). We do not own the cottage; the CCRC owns it. Last year, we paid a contractor to add insulation to the cottage, and I am trying to figure out if we are eligible for the Residential Energy Credit.

Here's the relevant section from the instructions from Form 5695 for the credit:

"Who Can Take the Credits
You may be able to take the credits if you made energy saving
improvements to your home located in the United States in
2017.
Home. A home is where you lived in 2017 and can include a
house, houseboat, mobile home, cooperative apartment,
condominium, and a manufactured home that conforms to
Federal Manufactured Home Construction and Safety
Standards.
You must reduce the basis of your home by the amount of
any credit allowed."

You will notice the instructions do not explicitly say you have to own the home. However, the last sentence infers you do.

So are we eligible for the credit or not? And what is the basis for the conclusion?

plannerman

barberakb
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Re: Residential Energy Credits-Non owned property

Post by barberakb » Fri Mar 30, 2018 2:26 pm

The way I read it would be no.

Both the first and last sentence state "your home"

IMO it isn't your home unless you own it.

But that's my guess...

Chip
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Re: Residential Energy Credits-Non owned property

Post by Chip » Fri Mar 30, 2018 3:12 pm

You can't take the credit.

From the instructions for F5695, page 2:
IRS wrote:Residential energy property costs. Residential energy property costs are costs of new qualified energy property that is installed on or in connection with your main home that you owned during 2017 located in the United States.

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plannerman
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Re: Residential Energy Credits-Non owned property

Post by plannerman » Fri Mar 30, 2018 4:13 pm

barberakb wrote:
Fri Mar 30, 2018 2:26 pm
The way I read it would be no.

Both the first and last sentence state "your home"

IMO it isn't your home unless you own it.

But that's my guess...
I understand what you are saying, but we refer to it as "our home". Have you ever heard the expression "your home is where you hang your hat"

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plannerman
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Re: Residential Energy Credits-Non owned property

Post by plannerman » Fri Mar 30, 2018 4:25 pm

Chip wrote:
Fri Mar 30, 2018 3:12 pm
You can't take the credit.

From the instructions for F5695, page 2:
IRS wrote:Residential energy property costs. Residential energy property costs are costs of new qualified energy property that is installed on or in connection with your main home that you owned during 2017 located in the United States.
Residential energy property costs appear to me to be a different credit. The fact that the Form 5695 instructions for it specifically state it must be installed in your main home that you owned in 2017, in my view reinforces, since ownership is not mentioned for the Residential Energy Efficiency Property Credit, that ownership is not a requirement for the latter.

plannerman

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HueyLD
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Re: Residential Energy Credits-Non owned property

Post by HueyLD » Fri Mar 30, 2018 5:31 pm

OP,

Yes you can claim this relatively small non-refundable credit.
§ 1.23-1 Residential energy credit.

(a)General rule. Section 23 or former section 44C provides a residential energy credit against the tax imposed by chapter 1 of the Internal Revenue Code. The credit is an amount equal to the individual's qualified energy conservation expenditures (set out in paragraph (b)) plus the individual's qualified renewable energy source expenditures (set out in paragraph (c)) for the taxable year. However, the credit is subject to the limitations described in paragraph (d) and the special rules contained in § 1.23-3. The credit is nonrefundable (that is, the credit may not exceed an individual's tax liability for the taxable year). However, any unused credit may be carried over to succeeding years to the extent permitted under paragraph (e). Renters as well as owners of a dwelling unit may qualify for the credit.
https://www.law.cornell.edu/cfr/text/26/1.23-1

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plannerman
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Re: Residential Energy Credits-Non owned property

Post by plannerman » Fri Mar 30, 2018 6:22 pm

Thanks you so much. The breadth of knowledge of the posters on this board is--impressive.

plannerman

Chip
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Re: Residential Energy Credits-Non owned property

Post by Chip » Sat Mar 31, 2018 7:44 am

plannerman wrote:
Fri Mar 30, 2018 4:25 pm
Residential energy property costs appear to me to be a different credit. The fact that the Form 5695 instructions for it specifically state it must be installed in your main home that you owned in 2017, in my view reinforces, since ownership is not mentioned for the Residential Energy Efficiency Property Credit, that ownership is not a requirement for the latter.
Note that Part I of F5695 (Residential Energy Efficiency Property Credit) does not apply to you as it is only for solar, wind, geothermal and fuel cell installations. Part II (Non-business energy property credit) is the section of the form that applies to adding insulation, new windows, etc.

I should have quoted from just higher up on that same page in the 5695 instructions:
IRS wrote:Qualified energy efficiency improvements. Qualified energy efficiency improvements are the following building envelope components installed on or in your main home that you owned during 2017 located in the United States if the original use of the component begins with you, the component can be expected to remain in use at least 5 years, and the component meets certain energy standards.
  • Any insulation material or system that is specifically and primarily designed to reduce heat loss or gain of a home when installed in or on such a home.
    Exterior windows and skylights.
    Exterior doors.
    Any metal roof with appropriate pigmented coatings or asphalt
    roof with appropriate cooling granules that are specifically and
    primarily designed to reduce the heat gain of your home
I realize that this conflicts with law section that HueyLD quoted. I don't have an explanation for that except that it appears Congress took some of the verbiage from the late 70s law that expired in the mid-80s and reapplied it to the 2005 law which is what we are dealing with here. It's either a direct conflict between the IRS Pubs and the quoted law or we are missing something in the way the law is written.

Also note that should you choose to take the credit (I would not), the credit only applies to the cost of the materials, not the labor to install it.

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dwickenh
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Re: Residential Energy Credits-Non owned property

Post by dwickenh » Sat Mar 31, 2018 8:02 am

plannerman wrote:
Fri Mar 30, 2018 4:13 pm
barberakb wrote:
Fri Mar 30, 2018 2:26 pm
The way I read it would be no.

Both the first and last sentence state "your home"

IMO it isn't your home unless you own it.

But that's my guess...
I understand what you are saying, but we refer to it as "our home". Have you ever heard the expression "your home is where you hang your hat"
I have not heard that from the IRS
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

MarkNYC
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Re: Residential Energy Credits-Non owned property

Post by MarkNYC » Sat Mar 31, 2018 8:26 am

barberakb wrote:
Fri Mar 30, 2018 2:26 pm
The way I read it would be no.

Both the first and last sentence state "your home"

IMO it isn't your home unless you own it.
So would you consider a person who rents to be a homeless person? :wink:

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plannerman
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Re: Residential Energy Credits-Non owned property

Post by plannerman » Mon Apr 02, 2018 7:45 am

OP here.

Based HueyLD's Code reference that clearly states that renters can take the Residential Energy Property Credit, I intend to take it. This leads me to a second question of what is included: The instructions for Form 5695 says "For purposes of figuring the credit, don't include amounts paid for the onsite preparation, assembly, or original installation of the building envelope component."

However reading through the rest of the code reference HueyLD provided, I find the following:

Energy conservation expenditures -
(1) In general. The term “energy conservation expenditure” means an expenditure made on or after April 20, 1977, and before January 1, 1986, by a taxpayer for insulation or any other energy-conserving component, or for labor costs allocable to the original installation of such insulation or other component, if all of the following conditions are satisfied:..." (emphasis added)

Based on my understanding that the code trumps the Form instructions, it seems to me that I can include the total cost of the insulation including installation. However I think you all can appreciate why I might still be uncertain. Any further clarification would be appreciated.

plannerman

Chip
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Re: Residential Energy Credits-Non owned property

Post by Chip » Mon Apr 02, 2018 9:15 am

Note that the passage that you quoted specifies expenditures between 4/20/77 and 1/1/86. That same section of code says that the dwelling had to be substantially completed before 4/20/77.

According to the section you're quoting there is no energy tax credit available. :P

Chip
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Re: Residential Energy Credits-Non owned property

Post by Chip » Mon Apr 02, 2018 9:40 am

I wonder if perhaps the Cornell code is somehow not up to date? Searching around I found the 2005 legislation that revived the 1979 credit, the Energy Policy Act of 2005. On page 434 of that PDF you'll see the following in the bill:
Energy Policy Act of 2005 wrote:‘‘(c) QUALIFIED ENERGY EFFICIENCY IMPROVEMENTS.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified energy efficiency improvements’ means any energy efficient building envelope component [...] if—
‘‘(A) such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121),
‘‘(B) the original use of such component commences with the taxpayer, and
‘‘(C) such component reasonably can be expected to remain in use for at least 5 years.
‘‘(2) BUILDING ENVELOPE COMPONENT.—The term ‘building envelope component’ means—
‘‘(A) any insulation material or system which is specifically and primarily designed to reduce the heat loss or gain of a dwelling unit when installed in or on such dwelling unit,
Note the building ownership requirement.

It appears that the IRS F5695 instructions were mostly taken directly from this Act. There were further modifications to these laws in 2008 and 2009. Since the law expired in 2010 and was subsequently reauthorized (extended) several times I suspect that there could have been revisions at any of those times as well.

As I said, I wouldn't take the credit in direct contradiction to IRS instructions. Even if I could find an old law that says I can.

Chip
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Re: Residential Energy Credits-Non owned property

Post by Chip » Mon Apr 02, 2018 12:51 pm

Okay, here's the reference in the Code that corresponds to the 2005 Act, which I believe is the citation that applies to the OP's question.

26 U.S. Code § 25C - Nonbusiness energy property

Quoting from that text (emphasis mine):
26 USC § 25C wrote:(c) Qualified energy efficiency improvements
For purposes of this section—
(1) In general
The term “qualified energy efficiency improvements” means any energy efficient building envelope component, if—
(A) such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121),
[...]
(3) Building envelope component
The term “building envelope component” means—
(A) any insulation material or system which is specifically and primarily designed to reduce the heat loss or gain of a dwelling unit when installed in or on such dwelling unit,
I don't know why Section 1.23-1, which HueyLD quoted, is still in there. A guess is that it's because all of the provisions expired and therefore are no longer valid.

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plannerman
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Re: Residential Energy Credits-Non owned property

Post by plannerman » Mon Apr 02, 2018 3:35 pm

Chip wrote:
Mon Apr 02, 2018 12:51 pm
Okay, here's the reference in the Code that corresponds to the 2005 Act, which I believe is the citation that applies to the OP's question.

26 U.S. Code § 25C - Nonbusiness energy property

Quoting from that text (emphasis mine):
26 USC § 25C wrote:(c) Qualified energy efficiency improvements
For purposes of this section—
(1) In general
The term “qualified energy efficiency improvements” means any energy efficient building envelope component, if—
(A) such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121),
[...]
(3) Building envelope component
The term “building envelope component” means—
(A) any insulation material or system which is specifically and primarily designed to reduce the heat loss or gain of a dwelling unit when installed in or on such dwelling unit,
I don't know why Section 1.23-1, which HueyLD quoted, is still in there. A guess is that it's because all of the provisions expired and therefore are no longer valid.
Chip,

I think you nailed it. No Residential Energy Credit for me. Thanks for sorting this out.

plannerman

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