Posted by Income Taxes and Bookkeeping LLC

What to Know About Energy Tax Incentives

What to Know About Energy Tax Incentives

In America, as a means of protecting the environment, the three tiers of government provide a series of incentives to encourage renewable energy. Although they differ in scope from state to state, the ultimate goal is to support renewables and energy efficiency in the United States.  

As individuals and organizations, you can benefit from different grants and tax credits if you intend to invest in renewable energy. If you're undertaking a large project based on renewable energy, you can even qualify for loans. Again, while the scope of the benefits differs from state to state, the idea also remains to encourage investment in renewable energy on a large scale.

Why does the Government offer Incentives for Renewable Energy?

It's simple. The government believes that the easiest way to achieve reduced emissions and address climate change would be to offer incentives to reduce the use of fossil fuels which are primarily the most common forms of energy. The fewer fossil fuels used equally, the cleaner the environment. A comprehensive database of incentives offered in each state is available in the State Incentives for Renewables & Efficiency.

Energy Tax Incentives

As individuals, under the residential energy efficient property credit program, you qualify for some tax incentives in the form of non-refundable tax credits if you make your home more energy-efficient. Suppose you install renewable energy equipment like solar electricity property, solar-powered water heaters, wind turbines, tankless water heater, and geothermal heat pumps in your home. In that case, you are entitled to a credit equal to the cost of the installed property.

Here's how it works.

You are entitled to claim the Residential Energy Efficiency Property Credit, up to 30% of the cost of the equipment (plus installation) in 2019, 26% through 2022, and 22% in 2023. The credit then expires after 2023. Fuel cells also qualify for a tax credit at the rate of $1,000 for every kilowatt of energy. 

If you upgrade or install specific energy-efficient equipment in your home, you are also qualified for some incentives under the Nonbusiness Energy Property Credit. However, the equipment must be certified by the regulatory authorities.

Most times, the manufacturers would indicate if the material meets the requirements. Some of the upgrades and installations the IRS approves include energy-saving windows, doors, skylights, insulation roofing materials and home insulation that are energy efficient.

You are entitled to 10% of the cost for upgrades. 

You can also claim up to 100% of residential energy property costs. However, the cost cannot exceed $500. The spending on energy covers products like natural gas water heaters, energy-efficient air conditioners, and biomass stoves.

So, Do I Qualify?

If you've made any energy-saving and environmentally friendly improvements to your home, you can take these tax credits.

They come in non-refundable tax credits, which can lower your taxes even up to $0. For 2018-2021, you are entitled to a residential energy property credit of $500. 

Also, suppose you have more than one home. In that case, you can claim energy tax benefits on your principal and a second home if you make energy-efficient installations like solar-powered machines, wind turbines, and geothermal equipment. Also, you can claim incentives on more than two homes.

For Fuel-cell equipment, tax credit only applies to your principal residence and no more. 

How to claim the Tax Incentives

Claiming the tax incentives is easy—file Form 5695 with your tax return to claim your tax incentives. You can also talk to a tax professional, such as INCOME TAXES & BOOKKEEPING, LLC. to help guide you to know if you can benefit more than you already do.



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