Residential Energy Tax Credit for Wood-burning Stoves

The federal tax overhaul of early 2013 was designed to avoid a "fiscal cliff" of drastic spending cuts and tax increases. The legislation provided a useful fringe benefit to wood stove buyers in the form of a tax credit. Congress extended this credit for "biomass" energy in order to encourage households to invest in alternative heat sources.

Limits on Credit Amount

The IRS allows you to claim a credit for the purchase of a stove burning wood, wood pellets or other biomass fuel. The credit is limited to 10 percent of the purchase price, with a maximum credit amount of $300 on a single purchase (which may include installation costs). Congress renewed the law authorizing the credit in early 2013, making it retroactive to tax year 2012.

Thermal Efficiency

The IRS rules on the credit require the appliance to achieve a minimum of 75 percent thermal efficiency rating. That means that the furnace must convert at least 75 percent of the potential stored heat in the fuel to actual heat output. Manufacturers post thermal efficiency ratings of their products on their websites, and the store where you buy the stove should be able to provide a certificate.

Lifetime Credit Limits

You take a tax credit directly from your tax liability, making it more valuable than a deduction from income. For the stove credit, the rules limit taxpayers to a lifetime credit of $500; thus, if you take a $300 credit in one year, you can only take a maximum credit of $200 in subsequent years. The maximum lifetime limit applies to all tax years back to 2006, when Congress passed the original credit. The stove must be new, and you must be the original user; the credit does not apply to used appliances.

Form 5695

To take the credit, you must file Form 5695, Residential Energy Credits and attach it to your Form 1040. You enter the cost of the stove on Line 24a of Part II; you must also enter the total of any previous credits taken on Line 20f. Keep the receipt for the purchase of the stove as well as the manufacturer's certificate of the thermal efficiency rating.

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About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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