25C Tax Credit for Biomass Stoves
Tax Credit for Qualifying Biomass Stoves
The 25C tax credit for qualifying biomass-fueled stoves is now available for purchases made between December 31, 2013 and December 31, 2014.
On December 19, 2014, the President signed into law the Tax Increase Prevention Act of 2014 (H.R. 5771). The bill reauthorizes, among other credits, the Sec. 25C tax credit for non-business energy property. Included in this section is the $300 credit for residential biomass heating equipment. The bill simply moves the expiration date for this credit from December 31, 2013 to December 31, 2014.
The credit applies to purchases made in 2014. Consumers who made residential biomass heating purchases need to retain for their records a manufacturer’s certificate that demonstrates the unit qualifies for Sec. 25C and a receipt (proof of purchase).
How to Claim this Tax Credit
The credit can be claimed on IRS Form 5695. The biomass tax credit could be claimed on line 22a of the 2013 form (Residential energy property costs -- Energy-efficient building property). More detailed instructions regarding completion of this section can be found on the last page of IRS Form 5695 at the bottom of the first column. Please contact us if you have any questions about completing this form or requirements for claiming the tax credit. As of January 6, 2015, the 2014 form has not yet been published. HPBA recommends all individuals consult with their tax adviser for details on the applicability of the tax credit.
Tax Credit FAQs
- What is the Biomass-Burning Stove Tax Credit?
- What is the difference between a tax deduction and a tax credit?
- What is the difference between a non-refundable tax credit and refundable tax credit?
- When does this tax credit go into effect and how long will it last?
- How is the value of this tax credit determined?
- What appliances qualify for the tax credit?
- Why was 75% efficiency selected?
- How is the 75% efficiency requirement determined?
- Are biomass stoves installed in new or vacation homes covered by this tax credit?
- What is meant by "renewable biomass?"
- If a consumer purchases other products, such as solar collectors or window upgrades, does this mean a biomass stove tax credit can't be taken?
- Will other wood and solid-fuel appliances (like inserts, EPA-certified wood-burning fireplaces and hydronic heaters) qualify for the tax credit?
- How do I ensure that I can collect on my tax credit?
- What should a retailer provide and the customer retain for tax purposes?
- Are installation costs included in this tax credit?
- Does the stove need to be manufactured in the U.S. to qualify for the credit?
- Where can I find more information about this tax credit?
This federal tax credit encourages people to make energy-conscious purchases that improve the energy efficiency of their home. It is an up to $300 credit for buying a qualifying biomass-burning stove between January 1, 2012 and December 31, 2014. Biomass simply means the stove uses wood or pellet fuel.
Consumers claim the credit on their federal income tax form at the end of the year. This credit reduces the amount of tax you owe. The credit is a reduction of total income tax at the bottom of your return, up to $300. This tax credit is a non-refundable tax credit available for individuals who pay taxes and who make energy-conscious purchases to improve the energy efficiency of their home.
Note: With regard to tax credits vs. tax deductions, in general, a tax credit is more valuable than a similar tax deduction. A tax credit reduces the tax you pay, dollar-for-dollar. Tax deductions - such as those for home mortgages and charitable giving - lower your taxable income.
As previously stated, a deduction is an expense or amount you can subtract from your taxable income. A tax credit lowers your actual tax bill dollar-for-dollar, in this case by up to $300. In general, a tax credit is more valuable than a similar tax deduction.
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 tax credit only reduces an individual's tax liability to zero. Refundable credits can be considered the same as a payment, with no limit to the amount a taxpayer can receive. A refundable tax credit is a tax credit that is not limited by the amount of an individual's tax liability.
The tax credit for qualifying biomass stoves went into effect January 1, 2007 and is valid only for the purchase of a qualifying biomass made between January 1, 2014 and December 31, 2014. The maximum lifetime limit for the tax credit (for all residential energy property expenditures) is $300. The sales receipt must indicate a covered date of purchase.
When you buy a qualifying biomass-burning appliance, you get a dollar-for-dollar tax credit of up to $300.
Any wood- or pellet-burning stove that meets the 75% efficiency rating qualifies for this credit.
Manufacturers test their products to certify they meet this efficiency standard and the IRS-required certification will come with the product straight from the appliance manufacturer. Visit your local specialty retailer who can explain which products they have will qualify for the tax credit.
The 75% efficiency was designated by the U.S. Congress in 2005 as part of the Energy Policy Act and was used again for this tax credit.
The manufacturer of the stove must provide certification that the product tests for at least a 75% efficiency rating using the lower heating value, i.e., the heat value of a combustion process assuming that none of the water vapor resulting from the process is condensed out, so that its latent heat is not available.
No. The credit only applies to your existing principal residence. New homes and vacation homes don't qualify, nor do homes owned as rental units. The IRS is very clear that this credit applies only to existing principal residences, thus new homes and vacation homes would not qualify, nor would homes owned as rental units.
For the purposes of this tax credit, the term 'renewable biomass' means any of the following:
(A) Materials, pre-commercial thinnings, or removed invasive species from National Forest System land and public lands, including those that are byproducts of preventive treatments (such as trees, wood, brush, thinnings, chips, and slash), that are removed as part of a federally recognized timber sale, or that are removed to reduce hazardous fuels, to reduce or contain disease or insect infestation, or to restore ecosystem health, and that are harvested in environmentally sustainable quantities, as determined by the appropriate federal land manager; and harvested in accordance with federal and state law, and applicable land management plans.
(B) Any organic matter that is available on a renewable or recurring basis from non-federal land or land belonging to an Indian or Indian Tribe that is held in trust by the United States, including renewable plant material like feed grains; other agricultural commodities; other plants and trees; and algae; and waste material, including crop residue; other vegetative waste material (including wood waste and wood residues); animal waste and byproducts (including fats, oils, greases, and manure); construction waste; and food waste and yard waste.
(C) Residues and byproducts from wood, pulp, or paper products facilities.
The IRS did not state that inserts are covered, or are not covered. However, based on EPA's practice of treating inserts and freestanding biomass stoves in a similar fashion, manufacturers may choose to include inserts. At this time (December 2014), it is not clear whether EPA-certified wood-burning fireplaces or hydronic heaters will qualify.
The tax credit is an aggregate, meaning the total credit can be used for items other than biomass stoves, such as windows and doors, HVAC and non-solar water heater upgrades, and roof upgrades, all of which are in the same tax credit category as biomass stoves. The tax credit for all of these upgrades is capped at $500 for expenditures made after December 31, 2005.
Save your receipt that proves you purchased the qualifying appliance between January 1, 2014 and December 31, 2014. You'll also need a manufacturer's certification statement that states your product meets the 75% efficiency rating needed to qualify for this tax credit.
A manufacturer's certification statement must contain the following information:
- The name and address of the manufacturer.
- Identification of the class of qualified energy property (Biomass-Burning Stove) in which the property is included.
- The make, model number and any other appropriate identifiers of the stove.
- A statement that the product is an eligible qualified energy property.
- A manufacturer's certification statement must contain a declaration, signed by a person currently authorized to bind the manufacturer in these matters, in the following form: "Under penalties of perjury, I declare that I have examined this certification statement, and to the best of my knowledge and belief, the facts are true, correct, and complete."
- These documents don't need to be attached to your tax return, but you should keep them for your records.
Retailers and consumers must keep exact records of any sale or purchase. Retailers should provide a consumer with the manufacturer's certification statement for the specific product model purchased. A consumer may rely on a manufacturer's certification statement that their products are qualified energy property. A taxpayer is not required to attach the certification statement to the return on which the credit is claimed. A consumer claiming a credit for qualified energy property should retain the certification statement as part of the taxpayer's records. Manufacturers should make this certification document available to consumers on the web, in the product packaging, or in some other easily accessible manner.
Yes. Installation costs are included as long as professional installation is required for the proper and safe operation of the stove. The IRS is silent on the possible need to replace a chimney when upgrading an existing biomass stove; however, the EPA has a section on its website titled, Installation Affects Efficiency, which retailers and consumers should consult when deciding if a chimney replacement is warranted when installing a biomass stove.
No. There is no "Buy America" component to this tax credit.
More information on the tax credit can be found here.