Q: What is the Biomass Federal Tax Credit?
A: This federal tax credit encourages you to make energy-conscious purchases that improve the energy efficiency of your home. It is a $300 tax credit for purchasing a qualifying biomass product between January 1, 2015 and December 31, 2016. Biomass simply means a hearth product that burns wood or pellet fuel.
You claim the credit on your federal income tax form for the year the product was purchased. This credit reduces the amount of tax you owe by $300. It is a non-refundable tax credit available for individuals who pay taxes and make energy-conscious purchases to improve the energy efficiency of their homes.
Q: What is the difference between a tax credit and a tax deduction?
A: A tax credit is more valuable than a tax deduction because a tax credit reduces the tax you pay dollar-for-dollar whereas a tax deduction simply lowers your taxable income.
Q: What is the different between a non-refundable and refundable tax credit?
A: A non-refundable tax credit (such as this one) is a tax credit that is applied to the amount of tax owed by the taxpayer after all deductions are made from his or her taxable income. Typically, a non-refundable tax credit only reduces an individual’s tax liability up to $0. Refundable credits can be considered the same as payment, with no limit to the amount a taxpayer can receive and not limited by the amount of an individual’s tax liability.
Q: When does this tax credit go into effect and how long will it last?
A: The current tax credit for qualifying biomass product purchases went into effect December 18, 2015 and is valid for purchases made from January 1, 2015 through December 31, 2016. The maximum lifetime limit for the tax credit for all residential energy property expenditures is $300. The sales receipt must indicate the date of purchase.
Q: Which products qualify for this tax credit?
A: Any wood-burning or pellet-burning hearth product that meets the 75% efficiency rating qualifies for this credit. Congress determined the 75% efficiency requirement in 2005 as part of the Energy Policy Act.
Q: Are products installed in new homes, rental homes or vacation homes covered by this tax credit?
A: No. This tax credit only applies to your existing principal residence. New homes and vacation homes do not qualify, nor do homes owned as rental units.
Q: Where can I find additional information about this tax credit?
A: Additional information can be found here.
Q: What do I submit on my tax return to receive the credit?
A: Individual Income Tax Return Form 1040 and Residential Energy Credits Form 5695 are both needed to claim your tax credit. The applicable lines are highlighted here.
You will enter your information on Form 5695, available at the IRS website, on page 2, line 22.a, shown here: