Question on 2009 energy credit.

[Jesse]

My client is insulating and installing new windows in his unattached garage/personal shop and he’s wondering about the energy credits and I’m betting the question will arise again before the year is over. I’m still in my student mode trying to learn the answer as to whether or not outbuildings will qualify for the nonbusiness energy credits as part of a principal residence?

Per Notice 2006-26 requirements: (1) The property is installed on or in connection with a dwelling unit located in the United States and, at the time of installation, the dwelling unit is owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of § 121); and (2) The property is originally placed in service by the taxpayer.

The only definition of “dwelling unit” I am able to find deals with the credit to an eligible contractor who constructs a qualified new energy efficient home, which the definition of a dwelling unit = a single unit providing complete independent living facilities for one or more persons, including permanent provisions for living, sleeping, eating, cooking, and sanitation, within a building that is not more than three stories above grade in height.

Does dwelling unit have more than one definition similar to the definition of a First Time Homebuyer – the definition changes per issue – such as one definition for the $8,000 first time home buyer credit and a different definition for the reduction of the 10% IRA early withdrawal penalty.

[Jesse]

If it is on his property it is part of his residence.taxea

The energy credits are for making your main home more energy efficient.

Although another building may be considered part of your residence that does not mean any energy efficient improvements done to the outbuildings will qualify for the energy credits. This is how I understood the nonbusiness energy property credit for property placed in service in before 12/31/2007.

Is the new issuance different or did I misunderstand the credit that expired?

I'm still a student of the tax code looking for some professional guidance.

I ask again taxea, are the energy credits for the main home or the outbuildings too?

[Jesse]

The energy credits are for making your main home more energy efficient.

Although another building may be considered part of your residence that does not mean any energy efficient improvements done to the outbuildings will qualify for the energy credits. This is how I understood the nonbusiness energy property credit for property placed in service in before 12/31/2007.

Is the new issuance different or did I misunderstand the credit that expired?

I'm still a student of the tax code looking for some professional guidance.

[taxmom34]

site to look up

someone gave this site a week ago. i found it informative. www.energystar.gov

[Jesse]

So he can take the credits for his unattached building?

[taxea]

If it is on his property it is part of his residence.taxea

[JG EA]

Thanks! A good possibility. I will leave it up in the air and wait until studying for next year's credits.

[Jesse]

I don't think so, but not 100% sure.

And then there is the possibility that the "new" credit will be more flexible than the "old" credit. If I recall correctly a discussion at a seminar I attended, improvements to an attached garage was a grey area, because it is suppose to be for your residence living quarters, but by improving the energy efficiency of the attached garage your are improving the efficiency of your residence.

[WhiteOleander]

I haven't ever read anything about this issue. But, since the outbuilding would be included in the Sec 121 exclusion if there were a sale, I would think it would be considered part of the personal residence. So, I would think you could use the outbuilding for energy credits.

Not sure if that helps.

[JG EA]

(No business or anything like that.)

Let me try a different approach. Can an energy credit be used in 2009 on an outbuilding of someone's personal residence?

[taxea]

Does he deduct it as his office? taxea

[JG EA]

Taxpayer wants to take advantage of this when he does some energy improvements in his unattached shop.

This would still be considered as his residence, his home, wouldn't it? (No business or anything like that.)