Are you making changes to save energy in your home? If you own a home and have made improvements in your home to make it more energy-efficient, you may be able to claim energy tax credits on your taxes. Are you making sure to take advantage of these?
Home renovations are not cheap, so it's important to get back everything you can by claiming government-created tax credits — especially if you plan to owe. Even if you didn't properly claim these tax credits in past years, you can amend previous years' returns to save big on specific energy-saving renovations.
Energy savers can earn big bucks each year that they do qualify for these specific credits. Three main areas can help you save more on your taxes: the Federal Solar Tax Credit, the Residential Renewable Energy Tax Credit, and the Nonbusiness Energy Property Tax Credit. Increase your return or decrease your amount owed by claiming your tax credits in these areas.
Federal Solar Tax Credit
Also known as the Solar Investment Tax Credit (ITC), the federal government created this tax credit to spur the use and implementation of solar energy in our country. It began in 2006, and since then, the solar industry has seen immense growth.
The Federal Solar Tax Credit or ITC provides a 30 percent tax credit for installing both residential and commercial solar systems. This credit can be applied to your personal income taxes, or when you've implemented a solar system in your business, you can claim it in your business income. As with all tax credits, it reduces the amount of taxes you and/or your business would owe to the government.
The unfortunate news is that this credit will slowly decrease for both homeowners and business owners, and it will be entirely minimized for homeowners in the coming years. For 2020 taxes, both parties will be able to claim 26 percent of their costs, and in 2021, the amount will drop to 22 percent for both. In 2022 and beyond, homeowners will no longer be able to claim the tax credit for solar systems, but commercial businesses will still be able to claim 10 percent.
Residential Renewable Energy Tax Credit
The Residential Renewable Energy Tax Credit gives you money back for the installation of solar, wind, geothermal, and fuel-cell technology and equipment. This includes:
- Solar panels
- Solar-powered water heaters
- Wind turbines
- Geothermal heat pumps
- Fuel cells that generate power for a home and rely on a renewable resource
This tax credit is specifically for residential energy. If you own more than one home, you can claim any qualifying equipment or technology in both your primary home and a second home, unless you are claiming fuel-cell technology — which can only be claimed by the primary residence.
Like the ITC, you will get 30% back of your total cost, which includes installing your equipment or technology. The unfortunate news is that, like the ITC, 2019 was the last year that you could get the full 30% back, and now the credit will decrease as the years go on. It's still worth claiming until then, though!
Nonbusiness Energy Property Tax Credit
The Nonbusiness Energy Property Tax Credit was only extended through December 31, 2019, so take advantage of it during the last year possible if you're still working on a tax extension or want to amend your return. The Nonbusiness Energy Property Tax Credit was specifically for qualified improvements to your home. This includes equipment or materials that meet certain standards that the Department of Energy has set. You can look to manufacturers to let you know if your equipment or materials qualify.
There are two main areas where you can get money back on your taxes during the last year of the Nonbusiness Energy Property Tax Credit: qualified energy efficiency improvements and residential energy property costs.
Qualified energy efficiency improvements include:
- Exterior doors
- Exterior windows, including skylights
- Some roofing materials
Residential energy property costs include:
- Electric heat pumps
- Electric heat pump water heaters
- Central air
- Natural gas, propane, or oil water heaters
- Biomass fuel-run stoves
- Natural gas, oil, or propane furnaces
- Natural gas, oil, or propane hot water boilers
- Advanced circulating fans that are used for natural gas, oil, and propane furnaces
From 2006 through December 31, 2019, you can claim 10% of any of your qualified energy efficiency improvements and the entire amount of your residential energy property costs. However, you can only claim a total of $500 throughout the specified time that the Nonbusiness Energy Property Credit exists.
Plus, there are limits to how much you can claim in each area. You can only claim up to $200 for windows, up to $50 for your furnace's circulating fan, up to $150 for your boiler or furnace, and up to $300 on any single cost.
How to Make Sure You Get Your Savings
Since these are significant savings that you can claim for your taxes, as well as many previous years, you may have some backtracking to do. If you can claim anything for previous years that these tax credits were active, you'll need to amend your return with the right forms.
Whether you're amending previous years or want to claim credits for your current taxes, make sure to use IRS Form 5695. After filling out your Form 5695, you'll enter the rest on your IRS Form 1040. Don't forget to keep your receipts with your taxes, as well as a Manufacturer's Certification Statement, in case you are ever audited.
It is easy to claim your tax credits with a tax professional's assistance or with great tax software. They can help you iron out the details of how much you will get deducted from your taxes and which energy-saving improvements qualify for the credit(s).
Make sure to take advantage of these lucrative tax credits while they last. Knowing that the deductions will decrease and be eliminated in the future, this may be the perfect time for you to invest in renewable energy in your home. These tax credits are a great way to get money deducted from the amount you owe or increase your return, plus make a greener planet.