Yes. This is a completely new tax credit not limited by the previous restrictions of Sec. 25(C). Further, there is no cap or limit on this credit.

Yes. The IRS updated its tax forms for this credit in November, here: https://www.irs.gov/pub/irs-dft/f5695--dft.pdf

You can find the mention of the new Sec. 25(D) tax credit on page 4,916 (PDF page 2,449) of this document: https://docs.house.gov/billsthisweek/20201221/BILLS-116HR133SA-RCP-116-68.pdf

This bill passed and was enacted.

Combined with the existing 25(D) language (the dates of the existing language were also changed by the recent legislation), that creates the 26% credit for wood and pellet heaters.

Existing 25(D) language: https://www.law.cornell.edu/uscode/text/26/25D

The language enacted at the end of 2020 eliminated the Sec. 25(C) tax credit of $300, starting in 2021. If you made a purchase and installation in 2020 that qualifies for the now-expired credit, you can still claim the credit on your 2020 tax return.

The new Sec. 25(D) tax credit is not retroactive. It can only be claimed on 2021 (and beyond) tax returns.

The tax credit can only be claimed on the tax return year in which product installation is complete.

This tax credit went into effect on January 1, 2021. It is available for qualifying purchases and installations completed between January 1, 2021 and on/before December 31, 2023. The tax credit will need to be extended past 2023 by future legislation. Consumers claim the tax credit in the year in which product installation was complete.

The Wood and Pellet ITC was created by legislation enacted by Congress at the end of 2020. It creates a new credit under Sec. 25(D) of the Internal Revenue Code. The credit covers 26 percent of purchase and installation costs in 2021 and 2022 and covers 22 percent of purchase and installation costs in 2023. 

Qualifying products are fueled by wood or pellets (biomass), heat air or water, and have a thermal efficiency of at least 75 percent per the higher heating value (HHV) of the fuel.

Talk to your nearest specialty hearth dealer about which products qualify. 

You can also reference the EPA-certified heaters list to find qualifying products (look at the column for "Overall Efficiency").

No, the tax credit cannot be claimed for any used appliance. Sec. 25(D)(e)(8) generally treats an expenditure as made when the original installation of the qualifying property is completed. So, it would not apply to a used appliance.

Any wood or pellet heater that is regulated by the U.S. EPA must be certified and would be on the EPA database list. It is possible that if you are looking for a certain product but aren’t finding it on the list that it is listed under a different name than what you are using in your search. It is also possible that a product is newly EPA-certified and the EPA has not yet updated the list. Check with the appliance manufacturer if you are having trouble locating it on the list.

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."

No, you are not required to have a manufacturer's certification statement to claim the credit. But, it is good to have if it is available. In the absence of a manufacturer's certification statement, we recommend you print out or save the appliance manual section that mentions the efficiency rating, or take a screenshot of its listing on EPA's website. 

Taxpayers may claim the credit on their federal income tax return form in the year in which product installation is complete. The credit is a reduction of total income tax owed. This is a non-refundable tax credit available for individuals who pay federal taxes and who make energy-conscious purchases to improve the energy efficiency of their home.

If your tax owed is reduced to zero by this credit, but you still have money left to claim, it can be carried over to the next tax year to further reduce your tax burden in the future.

You should always consult a tax professional as individual situations may vary.

Paper Filing: The credit can be claimed on IRS Form 5695 on line 5, "Qualified biomass fuel property costs." 

Electronic Filing: If you are using tax filing software, the credit generally will be found under the "Credits" section of the Federal portion (Home and Vehicles– Residential Energy Credit or Credit Carryforward). On H & R Block, the credit is not under "Residential Energy Credits;" it can be claimed under the "Alternative Energy Credit." This is on the page after "Residential Energy Credits" after you indicate "No" when asked if you've made a purchase that qualifies for the "Residential Energy Credit." 

If you have a credit carryover from a previous year (2021 and on), you can use this same form.

You should retain (1) the sales receipt and any installation paperwork and (2) the manufacturer’s certification statement (if not available, documentation that the heater is at least 75 percent HHV efficient). 

The sales receipt and installation documentation demonstrates that you purchased and completed installation of the qualifying heater during the effective time period of the credit. The retailer from whom you purchased the qualifying heater should also provide you with a manufacturer's certification statement indicating that the product qualifies for the tax credit. You aren't required to have a certification statement in order to claim the tax credit. A screenshot or printout of the product manual page listing the efficiency as at least 75 percent efficient per the HHV is sufficient.

The certification statement should contain the name and address of the manufacturer; the class of qualified energy property; the make, model number and any other appropriate identifiers of the heater; a statement that the product is eligible; and a declaration, signed by a person currently authorized to bind the manufacturer in these matters (e.g. 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.).

Manufacturers should make this certification document available to consumers on their website, in the product packaging, or in some other easily accessible manner.

A taxpayer does not need to include a copy of their purchase receipt in order to claim the tax credit. Thus, it is not “necessary” to itemize the receipt, but it is a good idea to do so in case the customer undergoes an audit and needs to show which part of the cost was for the appliance and which parts of the cost were for labor or other materials needed to complete installation.

Yes. Installation costs are included. Sales tax can also be included. Always consult a tax professional for issue-specific guidance.

Installation costs cover expenditures for labor costs for onsite preparation, assembly, or original installation of the qualified heater. This also includes any venting/piping/wiring to connect the heater to the home.

To ensure that your stove burns as efficiently, cleanly, and safely as possible, be sure to have it installed by a professional credentialed by the National Fireplace Institute.

Yes.

Unlike the old Sec. 25(C) tax credit (now expired), you can claim this tax credit for purchasing and installing a qualifying heater in a new home and a secondary/vacation home. The secondary/vacation home cannot be an "investment property," such as a rental property that is not used by the taxpayer as a residence.

Regarding new homes, a taxpayer can claim this credit for qualifying heaters installed in an existing home or a newly constructed home. 

See the new home FAQ for additional discussion on how to claim the credit for a product installed in a new home.

Always consult a tax professional for issue-specific guidance.

It depends. Individual circumstances vary. If it's part of the installation process, preparation and installation, it might. But they need to make sure they're following the related IRS guidance. Consult a tax professional.

It may depend on the individual’s situation, so consult a tax professional. It might be considered necessary work to complete a safe installation. But, always consult a tax professional in the absence of definitive IRS guidance.

Most likely, but always check with a tax professional. It might be considered a component necessary to complete installation of the qualifying product. The credit covers the installation costs, including venting. Could masonry chimney be considered venting? Yes. Always check with a tax professional on situations like this as the answer can vary in each case.

It may depend on the individual’s situation, so consult a tax professional. It might be considered necessary work to complete a safe installation. But always consult a tax professional in the absence of definitive IRS guidance.

It depends on each taxpayer's situation. Always consult a tax professional for issue-specific guidance.

Below is what the IRS specifically says (from their 2013 FAQs on page 5).

Public Utility. Under § 136, if a public utility provides (directly or indirectly) a subsidy to a customer for the purchase or installation of any energy conservation measure, the customer does not include in his or her gross income the value of the subsidy. As a result, the taxpayer may not claim a credit for the amount of the subsidy that is excluded from the taxpayer’s gross income. This rule applies whether a third-party contractor receives a subsidy on behalf of the taxpayer or the taxpayer receives
the subsidy directly. Not all payments from a public utility fall within the provisions of § 136.

Rebates. Rebates generally represent a reduction in the purchase price or cost of property, and the taxpayer must exclude the amount of the rebate from the amount of the qualified expenditure on which the taxpayer calculates the tax credit. In general, in order for a receipt of funds to be considered a nontaxable rebate, the rebate must be based on or related to the cost of the property; the rebate must be received from someone having a reasonable nexus to the sale of the property, for example, the manufacturer, distributor, or seller/installer; and the rebate must not represent payment or compensation for services.

State Energy-Efficiency Incentives. A state may provide energy-efficiency incentives to encourage taxpayers to purchase qualifying property under § 25C or § 25D. Section 136 does not address these incentives. Generally, a taxpayer is not required to reduce the purchase price or cost of property acquired with a governmental energy-efficiency incentive that is not a rebate. Many states label their energy-efficiency incentives as rebates, but these incentives may not in fact constitute rebates or purchase-price adjustments for federal income tax purposes. 

Yes, but always consult a tax professional. Also, a taxpayer is not required to reduce the purchase price or cost of property acquired with a governmental energy/efficiency incentive that is not a rebate. Many states label their energy-efficiency incentives as rebates, but these incentives may not in fact constitute as rebates or purchase-price adjustments for federal income tax purposes. 

Always consult a tax professional for issue-specific guidance.

The taxpayer may request that the homebuilder make a reasonable allocation or the taxpayer may use any other reasonable method to determine the cost of the property that is eligible for the Sec. 25(D) credit. Installation costs cover expenditures for labor costs for onsite preparation, assembly, or original installation of the qualified heater. This also includes any venting/piping/wiring to connect the heater to the home.

Always consult a tax professional for issue-specific guidance.

Yes. As long as the taxpayer begins to use the house as a residence before the tax credit expires, the taxpayer may claim the Sec. 25(D) credit in Year 2. 

Sec. 25(D(e)(8) treats an expenditure in connection with the construction or reconstruction of a structure as made when the taxpayer begins to originally use the constructed or reconstructed structure as a residence.

If the same scenario occurs with a model home, and the qualifying heater was used during the time it was marketed for sale, the taxpayer can still claim the Sec. 25(D) credit in Year 2. The expenditure is treated as made when the use of the structure as a residence begins.

Always consult a tax professional for issue-specific guidance.

No. Sec. 25(D)(e)(8) generally treats an expenditure as made when the original installation of the qualifying property is completed.

Only the taxpayer who begins the original use of the constructed or reconstructed structure as a residence or the taxpayer using the home as a residence when the property was originally installed is eligible for the tax credit.

Always consult a tax professional for issue-specific guidance.

A person in this situation needs to talk to a tax professional. It depends on their own individual situation. It is possible that neither can claim the credit, but it is certain that the credit should not be claimable by both parties. The circumstances really depend on the individual situation. A tax professional must be counseled.

The IRS says: If the credit allowable under subsection (a) exceeds the limitation imposed by section 26(a) for such taxable year reduced by the sum of the credits allowable under this subpart (other than this section), such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such succeeding taxable year.

The answer to this depends on your individual circumstances. Consult a tax professional. Since there is no lifetime limit on the 25(D) tax credit, the order in which the credits are claimed may not be as important as in years past.

The answer may depend on an individual’s tax circumstances and a tax professional should be consulted. The language of the credit does not identify any limit on the number of products installed in one residence that can qualify for the credit and there likely is no such a limit (the credit can be claimed for any qualifying product). Your tax advisor may have additional information about limitations based on a person’s tax situation.

No, there is no cap or limit. In 2021-2022, you can claim 26% of purchase and installation costs for a qualifying product. In 2023, you can claim 22% of purchase and installation costs for a qualifying product.

Taxpayers may claim the credit on their federal income tax return form. The credit is a reduction of total income tax at the bottom of your return of $300. This is a non-refundable tax credit available for individuals who pay federal taxes and who make energy-conscious purchases to improve the energy efficiency of their home.

Paper Filing: The credit can be claimed on IRS Form 5695 on line 22a (Residential energy property costs -- Energy-efficient building property).

Electronic Filing: If you are using tax filing software, the credit generally will be found under the "Credits" section of the Federal portion (Home Ownership – Residential Energy Credit).

If you made a qualifying purchase and installation in a previous tax year and want to claim the credit, you need to file an amended return using IRS Form 1040-X. 

You should retain (1) the sales receipt and (2) the manufacturer’s certification statement. The sales receipt demonstrates that you purchased the qualifying stove during the effective time period of the credit. The retailer from whom you purchased the qualifying stove should also provide you with a manufacturer's certification statement indicating that the product is qualified for the tax credit. You aren't required to have a certification statement in order to claim the tax credit.

This certification statement should contain the name and address of the manufacturer; the class of qualified energy property; the make, model number and any other appropriate identifiers of the stove; a statement that the product is eligible; and a declaration, signed by a person currently authorized to bind the manufacturer in these matters (e.g. 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.).

Yes. Installation costs are included. To ensure that your stove burns as efficiently, cleanly, and safely as possible, be sure to have it installed by a professional.

No. The credit only applies to a purchase made for your existing principal residence.

This tax credit is valid only for the purchase and installation of a qualifying biomass stove made before December 31, 2020. Consumers would claim the tax credit in the year in which it was purchased.

This U.S. federal tax credit encourages people to make energy-conscious purchases that improve the energy efficiency of their home. It is a $300 dollar-for-dollar, non-refundable, tax credit for purchasing a qualifying biomass-burning stove before December 31, 2020. Biomass simply means the stove uses wood or pellet fuel.

Any biomass appliance that meets or exceeds an energy efficiency rating of 75 percent qualifies for this credit. This credit applies to qualifying stoves that heat the air or water. However, visit your local specialty retailer who can explain which products qualify for the 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."

Yes, but only if you haven't already exceeded the $500 lifetime cap of the credit. If you  have exceeded the $500 lifetime cap of the credit, you may not claim it again.

The non-business energy property credit (which covers the biomass stove tax 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 per consumer for all expenditures claimed under the credit since December 31, 2005.

The 75 percent efficiency number was originally designated by the U.S. Congress in 2008 as part of the Emergency Economic Stabilization Act and was used again for this tax credit.

No, there is no "Buy America" component to this tax credit.

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 the qualified non-business energy property should retain the certification statement as part of their tax records if a certification statement is provided.

Manufacturers should make this certification document available to consumers on their website, in the product packaging, or in some other easily accessible manner.