Making energy-efficiency home improvements and choices can save you money in the long run, but did you know it may also save you money during tax season? Learn more.
If you spent 2016 making your home more energy-efficient, now is the time to start thinking about ways you can multiply your savings. Beyond making your home more comfortable and reducing your monthly utility bills, your efforts may also qualify you to receive a credit on your federal income tax.
However, navigating the complexities of IRS Form 5695 (“Residential Energy Credits”) can be daunting. We’re here to help with this guide to the two principal personal tax credit initiatives sponsored by the Department of Energy: the Residential Energy Efficiency Tax Credit and the Residential Renewable Energy Tax Credit.
The Residential Energy Efficiency Tax Credit
The Residential Energy Efficiency Tax Credit applies both to home improvements and to purchases of energy-efficient home appliances. The overall goal of the Residential Energy Efficiency Tax Credit is to reward homeowners who have taken major strides to avoid the dreaded summer electric bill and winter gas bill spikes by reducing their HVAC energy consumption. Specifically, this program covers what are known as “building envelope improvements” and the installation of energy-efficient heating, cooling and water-heating equipment.
The Residential Energy Efficiency Tax Credit applies only to pre-existing structures and does not cover new construction. If you replaced or made an addition to your home’s insulation, installed new exterior doors and/or windows, or installed a metal or asphalt roof designed to mitigate your home’s heat gain, you may be eligible for this credit.
In all instances, labor costs are not covered. All improvements must meet the standards set by the 2009 International Energy Conservation Code, and all actual equipment must adhere to the 6.0 Energy Star program requirements. If you are uncertain about your eligibility based on these requirements, check with your contractor or hire a professional to conduct a comprehensive home energy audit.
For a comprehensive list of the specific amounts you can claim, visit the Department of Energy’s Residential Energy Efficiency Tax Credit website. Whatever combination of improvements or purchases you wish to make, the total credit cannot exceed $500. The Residential Energy Efficiency Tax Credit expired on December 31, 2016, so any purchases made after that date are no longer eligible for this credit.
The Residential Renewable Energy Tax Credit
The Residential Renewable Energy Tax Credit applies to homeowners who have “gone off the grid” and installed private energy systems that rely upon renewable sources. Hydrogen fuel cells, solar panels, geothermal energy and wind power all qualify for this credit.
Unlike the Residential Energy Efficiency Tax Credit, the Residential Renewable Energy Tax Credit covers both pre-existing homes and new construction. It also covers the cost of labor associated with installation in addition to equipment outlays, which also includes any wiring, plumbing or ductwork installed in order to get the home’s new energy system up and running.
For tax year 2016 (your 2017 filing), uncapped credits are available at up to 30 percent of qualified expenditures. You cannot apply for the Residential Energy Efficiency Tax Credit until the system’s installation is complete, and the credit may have to be dispersed across future tax returns in conjunction with any other credits, deductions and liabilities.
Depending on the energy technology being used, other limitations and caps may apply. For complete details on allowable expenditures and stipulations that must be under the terms of this program, visit the Department of Energy’s Residential Renewable Energy Tax Credit website.
The provisions of the Residential Renewable Energy Tax Credit covering fuel cells, wind, and geothermal power all expired on December 31, 2016. However, if you are still weighing the pros and cons of using solar energy to power a water heater, HVAC system or all of your home’s electricity needs, you have until December 31, 2021 to apply for this credit. The earlier you adopt solar technology, the larger your credit. The credit decreases to 26 percent at the end of 2020 and to 22 percent the following year.
Of course, not all of your tax dollars go straight to Uncle Sam. You also pay state and local taxes. Depending upon where you live, you may be entitled to additional tax relief thanks to your efforts to make your home more energy efficient. Even your energy providers may offer premiums for using less energy or for using energy more conscientiously.
The U.S. Department of Energy website is home to a national database of tax credits, rebates and savings organized by state. Simply choose your home state from the drop-down list to uncover some potentially hidden energy-efficiency savings.
Before you file, look back through your receipts. Did you save the Energy Star information that came with your purchase of any new appliances? Do you have documentation of when any applicable home improvements were installed or completed by contractors?
Don’t miss out on these valuable government programs. Claim the full benefits of making smart, sustainable energy choices.