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What Are the Available Energy Tax Incentives And How To Claim It

What Are the Available Energy Tax Incentives And How To Claim It

If you’re a homeowner, you may qualify for a federal tax credit provided that you made improvements or installed appliances designed to maximize the energy efficiency of a home. Some of those that are eligible are equipment for solar, wind, geothermal, and fuel cell technology. 

The credits are good through 2019 and are then reduced each year until the end of 2021 as per the federal government’s nonbusiness energy property credit for the 2018 tax year. You will need to file Form 5696 with your tax return in order for you to claim the credits.

A 30 percent less energy usage is proudly announced by Energy Star products which makes them eligible for tax credits. For each year that the credit is available, the residential tax credits requirements will vary for each of those years.

Residential Energy Efficiency Property Credit

The residential energy efficiency property credit is 30 percent of the cost of alternative energy equipment installed on or in a home. The cost of installation is included in this as well. Additional examples of equipment eligible for the tax credit are solar hot water heaters, solar electric equipment, wind turbines, and fuel cell property. For most types of property, there is no dollar limit on the credit and the tax owed is more than the credit, the portion that was not used can be credited to next year’s tax return.

Although it’s required for the home to be located in the United States, the property doesn’t have to be the taxpayer’s main home unless the alternative energy equipment is qualified fuel cell property. The eligibility is also available for existing homes and homes that are under construction.

For improvements made through December 31, 2021, the credit for solar electric property and solar water heating property is extended. For property placed in service through December 31, 2016, the credit for expenditures made for qualified fuel cell property was available.

Non-business Energy Property Credit

There is a 10 percent worth of the cost of qualified energy-saving equipment or items added to a taxpayer’s main home in the past year for the first part of this credit. If you put up energy-efficient exterior windows and doors, certain roofs, and added insulation to your home, you may be eligible for this credit. Note that the cost of installation is not included.

The second part of the credit, on the other hand, is not a percentage of the cost. Instead, it includes the installation costs of some high-efficiency heating and air-conditioning systems, water heaters, and fuel stoves that are biomass. There are different dollar limit in different types of property.

The Internal Revenue Service says there is a $500 maximum lifetime limit to the credit. In order to qualify for the credit, the main must within the United States, and the non-business energy property credit is only offered for homes that already exists and not homes that are still under construction. The manufacturer must provide written certification to the taxpayer that says the product qualifies for the tax credit. The manufacturer’s website typically has the certification or in the packaging of the product itself. Taxpayers must file it along with their tax records instead of attaching it to their tax return.

How Energy Tax Credits Reduce Your Cost Basis

The dollar amount you claim for the residential energy tax credits must be used to reduce the cost basis of your home. According to the IRS in Publication 523, the increase in basis must be reduced otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. 

What Are Other Ways To Save

There are other ways to save aside from the federal tax breaks made available for homeowners. You may want to check with your local utilities about the rebates available for energy-efficient purchases. There are local utility companies that offer many appliances, building products, electronics, heating and cooling equipment, and water heaters that come with rebates. There are some rebates that are available right after purchase or immediately after installation. The total rebate amount typically depends on the product. You may find further insight from the Department of Energy’s database of energy efficient tax credits, rebates, and savings.

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