It’s a great time to go green—you get a dollar for dollar reduction in taxes and the money is taken off your gross income. For example, a 30 percent credit for an expenditure of $1,000 would result in a tax reduction of $300.
Bryan Clayton took advantage of a tax credit for his new home in Murfreesboro, Tenn. by installing a geothermal heating and air conditioning unit. These systems use
Tom Kimbis, Vice President of Executive Affairs of Solar Energy Industries Association (SEIA) in Washington, DC, had solar deployed at his all-electric home in Travilah, Md. It lowered his electric bill by 40 percent. His pay back will take about five years, but after that, the savings from his power bills will have paid for the initial cost of the system.
The actual cost savings these tax credits depends on your utility rates, where you live, existing state or local incentives, and when you had it installed. Solar costs have decreased more than 70 percent since 2010, so most Americans can save by choosing solar. Tax credits for solar improvements are available through 2020. If you haven’t yet made the improvements, you still have time to do so. Leasing also allows you to go solar with a third party owning the system. The third parties claim the tax credit and can pass those savings to you through lower prices.
Solar isn’t the only tax write off. You can get federal tax credits for energy efficient heating and air condition systems, energy efficient exterior windows, doors, skylights, roofs and roofing products,
Another purchase that offers a credit is the addition of a residential fuel cell and microturbine system, according to David Hryck, a New York City tax lawyer and personal finance expert. Through this credit, you can gain access of up $500 per 0.5 kilowatt of power. This credit can apply to either newly constructed homes or existing homes, but it must be your primary residence.
All-electric vehicles can also qualify for tax breaks. “I recommend that anyone who thinks they may qualify should check the fuel economy website and look up your make and model,” says Hryck. “Depending on the vehicle’s battery capacity, you could be in line for a credit north of a few thousand dollars.”
Several states offer tax savings for energy efficient improvements. A state credit that is gaining in popularity is for wind turbines. “If you live in a windy area, you can install a small turbine to generate electricity for your home,” he says. The tax credit is worth 30 percent the cost of the parts, labor and installation. It can also affect businesses that install wind turbines on their property. Because the rules vary by state, be sure to check at the state level for such incentives.
“If you made energy-efficient improvements to your home in 2016, you’re in luck,” says Brian Ashcraft, Director of Compliance at Liberty Tax Service. “It expires with the 2016 tax year, so make sure you bring receipts to your tax preparer this year to claim your credit.”
To learn more about different credits, the IRS website lists each one and provides additional details regarding whether you qualify and how you can apply for each credit.
To apply for the federal tax credits, your tax preparer will need to complete Form 5695 Residential energy Credits. Calculations from that form are then transferred to the Form 1040 or the Form 1040NR.”
Jacob Oksman, a tax attorney with Fox Rothschild LLP in New York City, offers his insights regarding tax credits:
Non-Business Energy Property Credits
IRC (the Internal Revenue Code of 1986, as amended) section 25C provides a credit worth 10 percent of the cost of certain qualified energy efficiency improvements that individuals add to their main home before January 1, 2017. The energy improvement items include insulation, windows, doors and roofs. The credit has a lifetime limit of $500 with only $200 of the limit applicable to windows.
You may also be able to claim credit for the actual cost of residential energy property expenditures. These expenditures include items like
In order to claim the credit, you need written certification from the manufacturer that their product qualifies for this tax credit (usually included with the product’s packaging). This credit expired at the end of 2016, but individuals may still claim the credit on their 2016 tax returns if they didn’t reach their lifetime limit in prior years.
Residential Energy Efficient Property Credits
IRC section 25D provides a credit worth 30 percent of the cost of alternative energy equipment you install in your home with no dollar limit on the credit for most types of property. The residential energy efficient property items include solar hot
Unfortunately, since residential energy efficient property items—including solar hot
For more information on both credits, refer to this guide.
There are a myriad of business tax credits that encourage businesses to produce or invest in renewable energy, including the production tax credit and the investment tax credit.
Credit for Electricity Produced from Renewable Resources
IRC section 45 provides a credit to businesses for producing and selling electricity from renewable resources during the first 10 years of production. Such energy resources include wind, closed-loop biomass, geothermal energy, solar energy, municipal solid waste, hydropower and marine, and hydrokinetic renewable energy. Generally, the energy must be produced and sold before January 1, 2017 (before January 1, 2020 for wind). The credit generally equals 1.5 cents (adjusted by an inflation factor) multiplied by the kilowatt hours of renewable energy produced and sold by the business.
Credit for Investment in Renewable Energy
IRC section 48 provides a credit to businesses equal to 30 percent (10 percent in some cases) of the cost of energy property placed in service during a taxable year. Energy property includes property that generates electricity from wind, solar energy, geothermal deposits, or microturbines.
Energy Efficient Commercial Building Property Deductions
IRC section 179D provides a deduction for the owners of commercial buildings for the costs of energy efficient property installed as part of a commercial building’s interior lighting, heating, cooling, ventilation, and hot