26 USC 25C - Nonbusiness energy property

(a) Allowance of credit 
In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of
(1) 10 percent of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year, and
(2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during such taxable year.
(b) Limitations 


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(1) Lifetime limitation 
The credit allowed under this section with respect to any taxpayer for any taxable year shall not exceed the excess (if any) of $500 over the aggregate credits allowed under this section with respect to such taxpayer for all prior taxable years.
(2) Windows 
In the case of amounts paid or incurred for components described in subsection (c)(2)(B) by any taxpayer for any taxable year, the credit allowed under this section with respect to such amounts for such year shall not exceed the excess (if any) of $200 over the aggregate credits allowed under this section with respect to such amounts for all prior taxable years.
(3) Limitation on residential energy property expenditures 
The amount of the credit allowed under this section by reason of subsection (a)(2) shall not exceed
(A) $50 for any advanced main air circulating fan,
(B) $150 for any qualified natural gas, propane, or oil furnace or hot water boiler, and
(C) $300 for any item of energy-efficient building property.
(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 which meets the prescriptive criteria for such component established by the 2000 International Energy Conservation Code, as such Code (including supplements) is in effect on the date of the enactment of this section (or, in the case of a metal roof with appropriate pigmented coatings which meet the Energy Star program requirements), 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 taxpayers principal residence (within the meaning of section 121),
(B) the original use of such component commences with the taxpayer, and

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(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,
(B) exterior windows (including skylights),
(C) exterior doors, and
(D) any metal roof installed on a dwelling unit, but only if such roof has appropriate pigmented coatings which are specifically and primarily designed to reduce the heat gain of such dwelling unit.
(3) Manufactured homes included 
The term dwelling unit includes a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (part 3280 of title 24, Code of Federal Regulations).
(d) Residential energy property expenditures 
For purposes of this section
(1) In general 
The term residential energy property expenditures means expenditures made by the taxpayer for qualified energy property which is
(A) installed on or in connection with a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayers principal residence (within the meaning of section 121), and
(B) originally placed in service by the taxpayer.

Such term includes expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property.

(2) Qualified energy property 

(A) In general 
The term qualified energy property means
(i) energy-efficient building property,
(ii) a qualified natural gas, propane, or oil furnace or hot water boiler, or
(iii) an advanced main air circulating fan.
(B) Performance and quality standards 
Property described under subparagraph (A) shall meet the performance and quality standards, and the certification requirements (if any), which
(i) have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy or the Administrator of the Environmental Protection Agency, as appropriate), and
(ii) are in effect at the time of the acquisition of the property, or at the time of the completion of the construction, reconstruction, or erection of the property, as the case may be.
(C) Requirements for standards 
The standards and requirements prescribed by the Secretary under subparagraph (B)
(i) in the case of the energy efficiency ratio (EER) for central air conditioners and electric heat pumps
(I) shall require measurements to be based on published data which is tested by manufacturers at 95 degrees Fahrenheit, and
(II) may be based on the certified data of the Air Conditioning and Refrigeration Institute that are prepared in partnership with the Consortium for Energy Efficiency, and
(ii) in the case of geothermal heat pumps
(I) shall be based on testing under the conditions of ARI/ISO Standard 132561 for Water Source Heat Pumps or ARI 870 for Direct Expansion GeoExchange Heat Pumps (DX), as appropriate, and
(II) shall include evidence that water heating services have been provided through a desuperheater or integrated water heating system connected to the storage water heater tank.
(3) Energy-efficient building property 
The term energy-efficient building property means
(A) an electric heat pump water heater which yields an energy factor of at least 2.0 in the standard Department of Energy test procedure,
(B) an electric heat pump which has a heating seasonal performance factor (HSPF) of at least 9, a seasonal energy efficiency ratio (SEER) of at least 15, and an energy efficiency ratio (EER) of at least 13,
(C) a geothermal heat pump which
(i) in the case of a closed loop product, has an energy efficiency ratio (EER) of at least 14.1 and a heating coefficient of performance (COP) of at least 3.3,
(ii) in the case of an open loop product, has an energy efficiency ratio (EER) of at least 16.2 and a heating coefficient of performance (COP) of at least 3.6, and
(iii) in the case of a direct expansion (DX) product, has an energy efficiency ratio (EER) of at least 15 and a heating coefficient of performance (COP) of at least 3.5,
(D) a central air conditioner which achieves the highest efficiency tier established by the Consortium for Energy Efficiency, as in effect on January 1, 2006, and
(E) a natural gas, propane, or oil water heater which has an energy factor of at least 0.80.
(4) Qualified natural gas, propane, or oil furnace or hot water boiler 
The term qualified natural gas, propane, or oil furnace or hot water boiler means a natural gas, propane, or oil furnace or hot water boiler which achieves an annual fuel utilization efficiency rate of not less than 95.
(5) Advanced main air circulating fan 
The term advanced main air circulating fan means a fan used in a natural gas, propane, or oil furnace and which has an annual electricity use of no more than 2 percent of the total annual energy use of the furnace (as determined in the standard Department of Energy test procedures).
(e) Special rules 
For purposes of this section
(1) Application of rules 
Rules similar to the rules under paragraphs (4), (5), (6), (7), (8), and (9) of section 25D (e) shall apply.
(2) Joint ownership of energy items 

(A) In general 
Any expenditure otherwise qualifying as an expenditure under this section shall not be treated as failing to so qualify merely because such expenditure was made with respect to two or more dwelling units.
(B) Limits applied separately 
In the case of any expenditure described in subparagraph (A), the amount of the credit allowable under subsection (a) shall (subject to paragraph (1)) be computed separately with respect to the amount of the expenditure made for each dwelling unit.
(f) Basis adjustments 
For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.
(g) Termination 
This section shall not apply with respect to any property placed in service after December 31, 2007.