Most 2009 & 2010 Energy Credits Don’t Apply to Rental Properties and Second Homes
Now that our renters have decided to move on to home ownership, we’re planning significant renovation on our sole rental property to get it ready for marketing in early Summer. We’ve been hearing a lot from our friends who have taken advantage of the 2009 and 2010 energy tax credits we wrote about earlier this year. And we were excited to take advantage of these credits in the installation of new windows on the townhome. Unfortunately, that’s not going to happen. As it turns out, most of the energy credits for common remodeling items (like energy efficient windows, doors, insulation, etc.) only qualify for the credit if the property is your principal residence (as defined by the IRS).
What is a Principal Residence?
Our rental property isn’t our principal residence (we know this because we live just down the road), but we’re sure someone will ask about the rules on this. The IRS is very vague about how a principal residence (also called a main home) is defined, but it includes factors like where you live most of the time, where you bank, the address on your drivers license, and more. That article gives you some clues and is worth looking at if you’re struggling with the question.
Our take: most people know which home is their main home, but a select few might actually have some trouble figuring this out. If you’re in a grey area, contact a tax advisor or accountant before getting started on the renovations.
What Credits Can’t You Take?
According to the Government’s EnergyStar site, If the home isn’t your principal residence, you can’t take the energy credits for any of the following improvements:
- Windows and Doors
- Insulation
- Roofs
- HVACs
- Non-solar Water Heaters
- Biomass Stoves
- Fuel cElls
What Credits CAN You Take?
Landlords and second home owners can claim a 30% tax credit with NO UPPER LIMIT on the following improvements:
- Geothermal Heat Pumps
- Solar Panels
- Solar Hot Water Heaters
- Small Wind Energy Systems
Not so great unless you’re really going to be making some changes, right?
Why Not Give Credits for Rental Properties and Second Homes?
Its not immediately clear why these home improvement tax credits aren’t available for second homes and rentals, especially if the goal is to reduce overall use and stop climate change. Here’s our take: for rentals, home improvements are already tax deductible (immediately for repairs, and over time through depreciation for capital improvements).
For landlords around in the 30% tax bracket, this equates to providing a “credit” for installation already. For second homes, the logic is probably something like, “if you’re rich enough to own a second home, you don’t need the tax break.” Whether you agree with it or not, those are the breaks under this rule.
(Photo: OregonDOT)
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5 Responses to Most 2009 & 2010 Energy Credits Don’t Apply to Rental Properties and Second Homes
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April 23rd, 2009 3:03 pm
I wish they would just be honest and say that tax credits are NOT equal to tax cut. We are putting off paying those taxes til next year…when all the actual tax cuts that the previous administration put into place expire too…expect a double whammy.
My tax credit came to an extra $2 per check. I can get a 20 oz cup of plain ol’ coffee on my way to work one day a week…and I pay the tax.
April 25th, 2009 2:45 am
The government should support energy saving improvements, no matter who actually resides in the home.
February 17th, 2010 11:47 am
Rental properties need to have insulation, new windows, etc. too. It help the energy crisis and helps the people renting who have to pay higher utility bills if the windows, etc. are not kept up. Is there any way to get help on income tax with new windows?
February 21st, 2010 12:22 pm
Janet, sorry for the delayed reply… no, i’m not aware of any way to get tax relief. In fact, windows qualify as a capital upgrade, so you have to capitalized and depreciate the upgrade (as opposed to writing off the expense in the installation year).
The stimulus bill had some advantages for folks installing new appliances and whatnot in rental properties to allow accelerated depreciation, but really there aren’t any straight-out credits that I’m aware of.
February 25th, 2010 6:07 pm
We own a house in Illinois and a few years ago we purchased a retirement house in New Mexico. The house was never rented. In February 2009 in preparation of our retirement and when we were still living in Illinois, we made improvements in the New Mexico home including the replacement of old glass windows with low E Pella windows. We moved to New Mexico in September 2009 and the Illinois house will be rented in April.
Question: Do we qualify for the 2009 & 2010 Energy Credits?
Thank you
JF