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January 1, 2013: Wood Still Good, says the Fed

As part of the “fiscal cliff” package that passed Congress on January 1, 2013, the expired 2011 tax credit for energy efficient biomass-burning appliances was reinstated for 2013. The package provides a 10 percent tax credit, up to $300 in value, on the purchase of a qualifying wood or pellet-burning product. The tax credit is subject to a $500 “lifetime limit” and applies retroactively to appliances purchased between January 1, 2012 and December 31, 2012.

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2012 - 2013 Biomass Tax Credit Extension FAQ's

Q: How does the new 2013 extension of the Recovery Act affect the purchase of wood stoves?
A: If you purchased and installed a new, qualifying biomass (wood or pellet) stove between January 1, 2012 and December 31, 2012, you can take a credit against your 2012 taxes totalling 10% of the purchase price, up to $3000 (maximum credit $300). The credit can also be taken on your 2013 tax return, for qualifying biomass products purchased between January 1, 2013 and December 31, 2013.

Q: So, what does it take for a stove to qualify?
A: The stove must be new, must burn biomass fuel, must achieve a thermal efficiency rating of 75% or greater, and must be purchased and put into service by Decemer 31, 2013.

Q: Could I buy more than one stove and get a 10% credit for each of them on this program?
A: Yes, if all are installed in your principal residence, up to the credit ceiling of $300.

Q: So, I could buy new stoves for the new house I'm building, my summer cabin and my rental house for a total of up to $3000, and get a 10% credit (up to $300) for the total?
A: Nope, the credit only applies to stoves installed in existing principal residences. Your new house, summer cabin and rental don't qualify.

Q: Does this program apply only to wood stoves?
A: The 10% tax credit also applies to other biomass appliances, such as pellet and corn stoves, as long as they achieve at least 75% thermal efficiency. For more information, click here.

Q: What if I spend $4,000 on my new stove? 10% would be $400. Would I get the $400?
A: Nope, the tax credit ceiling on the total of all biomass appliances is $300.

Q: Will this be some sort of deduction applied to my total wages, like a medical deduction?
A: This is much better: the credit comes straight off the bottom line on your return.

Q: Let's say I install a new $1595.00 wood or pellet stove in 2012 or 2013 (Tax Credit $159.50) and I end up owing $159.50 taxes for that year. How much do I pay?
A: Nothing. Your $159.50 Biomass Tax Credit will cancel out your $159.50 tax obligation.

Q: What if I have a $500 tax refund coming back?
A: You get your refund, plus the $159.50 Biomass Tax Credit on your new purchase. Your IRS refund check will total $659.50.

Q: What if I only paid $100 in taxes last year? Do I still get my $159.50 Tax Credit?
A: Nope, you get $100. The credit cannot exceed the amount of taxes you paid in.

Q: I am on social security and pay no taxes, can I get the credit?
A: Nada. The credit is only against taxes you paid in (or still owe) for the year you put the stove in service.

Q: I purchased a $2500 wood stove for my home in 2011, and received a tax credit for $250.00. We've moved, and are now considering a $3000 wood stove for this house. Can I claim the $300 tax credit on my 2013 return?
A: Nyet. There is a lifetime limit of $500 on the tax credits. You've already taken $250, so you only have $250 still available.

Q: Do all wood and pellet stoves qualify?
A: Only new stoves that achieve 75% minimum efficiency rating qualify for the tax credit.

Q: I checked the EPA label on the stove we want, and the efficiency rating was only 63%. Are we out of luck?
A: You might be OK. For some obscure reason, the EPA arbitrarily assigns an efficiency of 63% to all non-catalytic wood stoves, and 72% to all catalytic wood stoves. The real number is a result of actual efficiency testing, and can be viewed on the manufacturer's website. For a more detailed explanation, click here.

Q: What if I buy a wood or pellet stove second-hand? Can I take the credit?
A: Negative. The law specifies that the credit can only be applied to the purchase and installation of new stoves.

Q: Are you sure? I found the original bill online at http://www.irs.gov/pub/irs-drop/n-09-53.pdf , and it doesn't say anything about new or used.
A: It helps to have a magnifying glass and a working knowledge of legalese, but it's there alright, in Part 3, Section 2 .05 (1):
"A taxpayer may claim a credit... only if each of the following requirements is satisfied:
(b) The original use of the item commences with the taxpayer."
If you buy a used stove, you're not the original user, and you can't claim the tax credit.

Q: What about the hearth, stovepipe, chimney parts & labor I'll need to complete the installation? 10%?
A: It appears that, in the 2012-2013 version, the 10% credit applies to professional installation costs required for the proper and safe operation of the stove.

Q: How do I prove to the IRS that I've purchased a qualified stove? Do I send anything in with my tax return?
A: Yes, you must fill out Form 5695, which you can download at http://www.irs.gov/pub/irs-pdf/f5695.pdf. Your credit goes on line 3a. Save your receipt for the stove and keep it in a safe place along with the Manufacturer's Certificate of Qualified Energy Property. You can download or print Pacific Energy's certificate here, the Bis Ultima and Tradition CE certificates here, and Hearthstone's certificates here.

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