The residential energy tax credit expired with tax year 2016. Congress didn’t address this benefit in the new tax legislation signed into law in 2017. However, it’s possible that lawmakers may retroactively reinstate it in 2018. Here’s a detailed summary of the tax law changes.
If you installed new windows, doors, or skylights, you may be able to claim up to $500 in tax credits.
- For doors, you can claim up to a $500 credit.
- For windows and skylights, you can claim only up to a $200 credit. (That’s total — not per window.)
- 10% of expenditures, up to a lifetime $500, for all energy improvements combined.
- Installation costs aren’t covered.
- Save receipts and labels.
- File IRS Form 5695.
The Energy Star site is your safest bet for information on how to get the credit and what’s covered. Don’t rely solely on contractors who may not know the details or who promise their products will get the credit in order to make a sale.
Should You Be Thinking About Window Replacement?
A good rule of thumb for window replacement:
- Don’t bother if they’re less than 15 years old, says Jim Rooney, a home inspector in Annapolis, Md. Savings on your energy bills will be negligible since window technology hasn’t changed that radically and the integrity of your windows should still be intact.
- Shoddy installation or poor manufacturing may call for exceptions to the 15-year rule. Windows that are 20, 30, or more years old are prime candidates for replacement.
Most of your focus should be on windows, since they’re more numerous. However:
- Skylights are notorious for energy loss, too, not to mention water leaks.
- Exterior doors tend to outlast windows, so keep them unless the upgrade is purely for aesthetic reasons. Besides, weather stripping and snug sweeps can boost the energy efficiency of exterior doors for a whole lot less money.
Adding Up the Costs and Savings
With windows, doors, and skylights, you get what you pay for:
- Expect to shell out between $500 and $1,000 per window, including installation, or about $10,000 total for a moderately sized house of about 2,000 square feet.
- New energy-credit-qualified doors and skylights are also in the $500 to $1,000 range, including installation.
Products on the higher end of the cost scale are usually better constructed and more energy efficient, says Tom Herron of the National Fenestration Rating Council. NFRC is a non-profit organization that administers the rating and labeling system for the energy performance of windows, doors, and skylights. It could take years to recoup the upfront costs, but you should see an immediate reduction in your energy bills.
In general, you’ll save $126 to $465 per year replacing single-pane windows in a 2,000-square-foot house with tax-credit-eligible windows, according to the Efficient Windows Collaborative, a trade group.
In other words, you’ll save 15% to 40% off the typical energy bill.
Do Your Replacements Qualify for Tax Credit?
A label alone doesn’t guarantee your new windows, doors, and skylights qualify for the energy tax credit, but it does provide critical information related to eligibility.
To qualify, window, doors, and skylights must meet Energy Star 6.0 standards based on region of the country. Those standards include ratings for:
- U-factor, which measures how well a product prevents heat from escaping.
- Solar Heat Gain Coefficient (SHGC), which gauges how well a product blocks heat from the sun.
Energy Star may modify these requirements, so check online before making a purchase.
Labels also carry information on light transmission, air leakage, and condensation resistance.
Herron, of the NFRC, says 80% to 85% of the manufacturers in North America provide NFRC labels. All Energy Star-qualified windows carry an NFRC label, according to Energy Star, a joint program of the U.S. Department of Energy and the U.S. Environmental Protection Agency that promotes energy-efficient products and practices.
Resist the urge to trim costs by purchasing cheaper windows, doors, and skylights with poor U-factor and SHGC ratings. Not only will you miss out on the tax credit, but energy bills won’t come down much.
This article provides general information about tax laws and consequences, but isn’t intended to be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.