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Federal Tax Incentives for Energy Efficiency

Federal Tax Incentives for Energy Efficiency

Since 2005, consumers and businesses have managed to save federal taxes through various investments in energy efficiency.  Some states and services also offer tax incentives or discounts for useful products.

What Is The Energy Tax Credit?

A residential electricity credit is available for homeowners who make their home more efficient when installing a particular kind of equipment. Federal tax incentives on energy and state rebates are offered to many qualified homeowners. A tax credit is worth more than an equivalent deduction because a credit reduces the tax dollar for dollar, whereas a deduction only eliminates one percent of the tax.

Energy Tax Credit 

The residential energy tax credit is available to taxpayers through the form 5695 of the Internal Revenue Service. The 2018 Bilateral Finance Law (BBA), passed on February 9, 2018, restored the non-commercial mortgage credit for 2017. It also restored the credit for energy efficiency of homes till 2021 for small wind energy properties,  the ownership cost of geothermal heat pump and the cost of ownership of qualified fuel cells. However, taxpayers can send an amended return on Form 1040X to receive credit.

The energy credit is not limited to the taxpayer's main home, except for those related to fuel cells. Credit may also be claimed for newly built homes. For most types of properties, there is no dollar limit or credit limit. In particular, if the credit exceeds the taxes owing, taxpayers can transfer the unused balance to the next year's tax return. The energy tax credit can represent up to 30% of the total cost of installing specific renewable energy sources. In particular, solar equipment will be one of the most significant energy tax credits available in 2018. This credit applies to solar panel systems and solar water heating systems. Congress extended this credit at the end of 2015; Taxpayers have until the end of 2019 to claim 30%. After that, the value decreases by a few percentage points per year until 2022, when it disappears completely for the owners.

Current Incentives

Renewable and efficient on-site (low energy housing)

Similar tax credits for homeowners and businesses up to 30% of the cost of new ones:

  • Geothermal heat pumps.
  • Combustion cells and micro turbines.
  • Solar and hot water systems.
  • Small wind turbines.
  • Combined heating and energy systems (only for businesses, up to 10% of the cost)

Rechargeable electric and hybrid vehicles

A tax credit for hybrid electric vehicle buyers and plug-ins up to $7500

Incentives 

This incentive expired at the end of 2017, but can still be claimed in 2017 or in previous tax returns (they have been extended several times and can be renewed).

Home improvement (non-commercial energy properties)

A tax credit for homeowners occupying up to $500 per property in an existing residence:

  • Effective insulation, windows, and ceilings (up to 10% of the cost)
  • Efficient heating (150 USD), air conditioning (300 USD) and water heater (300 USD)

New houses

$2,000 commercial credit for new and efficient home builders (and $1,000 for some home-made products)

Commercial buildings

Deduction of business tax up to $1.80/square foot of Construction spaces for a new or modernized commercial building with efficient lighting, heating and cooling systems or building structures; includes a deduction of $0.30-0.60/ft. to improve lighting

Electric vehicles with 2- and 3- wheels

A tax credit for new 2- and 3-wheel electric vehicle purchasers up to $2,500

Charging stations for electric vehicles

A tax credit for new fuelling equipment for alternative fuel vehicles, including charging stations, up to 30% of the cost (with a maximum limit of $1,000 for individuals, $30,000 for businesses)

Expired Incentives

This incentive was widely approved in 2005, but their expiry was allowed.

Accessories

A taxable tax credit for efficient refrigerators, washing machines, and dishwashers.

Hybrid vehicles (light and heavy)

Tax credits for buyers of hybrid electric cars, SUVs, trucks, buses and hybrid conversion kits

Other Ways to Save Money

In addition to federal tax deductions, taxpayers may want to consult local utilities for available reductions for energy efficiency purchases. Local utilities are reducing many home appliances, building products, electronic equipment, heating, and air conditioning equipment and water heaters. Some discounts are available immediately after purchase or after installation. Usually, the total amount of the rebate depends on the product. 

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