Are Your Home Upgrades Eligible for Energy Tax Credits?

Planning on making an energy efficient upgrade to your home this year? Did you make one in the last few years? You may be eligible for residential energy tax credits, available to homeowners through 2021. These credits apply to alternative energy equipment and can reduce your tax burden on a dollar-for-dollar basis.

If you’re a homeowner, there are two specific credits you should consider.

Residential Renewable Energy Tax Credit

The Residential Renewable Energy Tax Credit applies to solar, wind, geothermal and fuel cell improvements. Specifically, the following products qualify when in a home-use capacity:

  • Geothermal heat pumps that meet federal Energy Star guidelines
  • Renewable fuel cells (must generate at least 0.5 kilowatts of power)
  • Solar panels, or photovoltaics, for generating electricity
  • Solar-powered water heaters (solar heaters for pools and hot tubs do not qualify)
  • Wind turbines generating up to 100 kilowatts of electricity

The applicable credit amount changes as we approach its discontinuation date of Dec. 31, 2021. As it stands, you can take advantage of the following credit amounts, applied to the total cost of alternative energy equipment installed in a home (including installation costs):

  • 30% for improvements made after December 31, 2016 and before January 1, 2020
  • 26% for improvements made after December 31, 2019 and before January 1, 2021
  • 22% for improvements made after December 31, 2020 and before January 1, 2022

Examples of applicable improvements include solar hot water heaters or wind turbines—items that generate clean power. Note that there’s no dollar limit on this energy tax credit for most improvements. The one exception is for fuel cells, which are capped at $500 per half-kilowatt of capacity.

While not refundable, the Residential Renewable Energy Tax Credit can be rolled into the following year if it exceeds any tax owed. The improvements don’t have to be installed at your main residence; however rental properties are not eligible.

Nonbusiness Energy Property Tax Credit

This energy tax credit equates to 10% of the cost of qualified energy efficiency improvements and 100% of residential energy property costs, capped at $500 (lifetime). There are also caps for individual improvements, specifically:

  • Up to $200 for windows
  • Up to $50 for a furnace circulating fan
  • Up to $150 for a furnace or boiler
  • Up to $300 for any other single residential energy property cost

Initially allowed to expire at the end of 2017, the Nonbusiness Energy Property Tax Credit has been retroactively revived. It now extends through 2019 as part of the 2020 Appropriations Bill. This means homeowners who made improvements prior to 2018 can claim a portion of the cost as a credit on their 2019 filings.

To claim the 10% part of this energy tax credit, you must purchase and install qualified efficiency improvements. You’ll also need written certification from the manufacturer showing the product qualified for the credit. Some of the products that qualify include:

  • Exterior doors
  • Exterior windows and skylights
  • Home insulation
  • Some roofing materials

To capitalize on the 100% portion, you must have documentation showing the real costs of energy generated using any of the following:

  • Electric heat pumps
  • Electric heat pump water heaters
  • Central air conditioning systems
  • Natural gas, propane or oil water heaters
  • Stoves using biomass fuel
  • Natural gas, propane or oil furnaces
  • Natural gas, propane or oil hot water boilers
  • Advanced circulating fans for natural gas, propane or oil furnaces

How to Claim Energy Tax Credits

To claim the Residential Renewable Energy Tax Credit and the Nonbusiness Energy Property Credit, you must complete IRS Form 5695. You also need proper documentation showing eligible improvements and energy savings. This can include manufacturer certifications, purchase and installation invoices, energy bills and the like.

As you can see, energy efficiency upgrades can do more than lower your electric bill and help the environment. They can also decrease your tax liability! For more information about taking advantage of residential energy tax credits, contact the tax professionals at James Moore today.

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