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Since it first came into being as the Energy Policy Act of 2005, the residential energy tax credit has had a long, tumultuous existence, with subsequent limitations, renewals and extensions.
The Bipartisan Budget Act of 2018, signed in February 2018, reinstated the nonbusiness energy property credit for 2017, and it reinstated the residential energy efficient property credit for qualified small wind energy property costs, qualified geothermal heat pump property costs, and qualified fuel cell property costs to the end of 2021. The tax credit for all technologies now features a gradual step down in the credit value. Following are some key facts to know about home energy tax credits for 2018 and beyond.
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According to the U.S. Department of Energy, you can claim the Residential Energy Efficiency Property Credit for solar, wind, and geothermal equipment in both your principal residence and a second home. But fuel-cell equipment qualifies only if installed in your principal residence.
A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is at a new home, the "placed in service" date is the date of occupancy by the homeowner.
Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. The maximum allowable credit, equipment requirements and other details vary by technology.
For instance, in case of the solar-electric property the credit is:
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30% for systems placed in service by 12/31/2019;
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26% for systems placed in service after 12/31/2019 and before 01/01/2021;
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22% for systems placed in service after 12/31/2020 and before 01/01/2022.
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There is no maximum credit for systems placed in service after 2008. |
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Systems must be placed in service on or after January 1, 2006, and on or before December 31,2021.
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The home served by the system does not have to be the taxpayer’s principal residence.
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| Solar water-heating property: |
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The same gradual step down in value as for solar-electric property.
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There is no maximum credit for systems placed in service after 2008.
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Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
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Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
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At least half the energy used to heat the dwelling's water must be from solar in order for the solar water-heating property expenditures to be eligible.
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The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.
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The home served by the system does not have to be the taxpayer’s principal residence.
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| Fuel cell property: |
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Gradual step down in value.
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The maximum credit is $500 per half kilowatt (kW).
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Systems must be placed in service on or after January 1, 2006, on or before December 31, 2021.
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The fuel cell must have a nameplate capacity of at least 0.5 kW of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.
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In case of joint occupancy, the maximum qualifying costs that can be taken into account by all occupants for figuring the credit is $1,667 per 0.5 kW. This does not apply to married individuals filing a joint return. The credit that may be claimed
by each individual is proportional to the costs he or she paid.
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The home served by the system must be the taxpayer’s principal residence.
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| Small wind-energy property: |
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Gradual step down in value.
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There is no maximum credit for systems placed in service after 2008.
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Systems must be placed in service on or after January 1, 2008, on or before December 31, 2021.
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The home served by the system does not have to be the taxpayer’s principal residence.
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| Geothermal heat pumps: |
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Gradual step down in value.
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There is no maximum credit for systems placed in service after 2008.
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Systems must be placed in service on or after January 1, 2008, and on or before December 31, 2021.
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The geothermal heat pump must meet federal Energy Star criteria.
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The home served by the system does not have to be the taxpayer’s principal residence.
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Some states also offer tax credits for solar installation and geothermal equipment.
The very popular residential Energy Property Tax Credits for Energy Star certified energy efficiency improvements had expired, but was retroactively restored for 2017.
Equipment and materials can qualify for the Nonbusiness Energy Property Credit if they meet technical efficiency standards set by the Department of Energy. The manufacturer can tell you whether a particular item meets those standards. For this credit, the IRS distinguishes between two kinds of upgrades. |
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The first is for qualified energy efficiency improvements, and it includes: home insulation, exterior doors, exterior windows and skylights, certain roofing materials.
The second category is for residential energy property costs and includes: electric heat pumps, electric heat pump water heaters, central air conditioning systems, natural gas, propane or oil water heaters, stoves that use biomass fuel, natural gas, propane or oil furnaces, natural gas, propane or oil hot water boilers, and advanced circulating fans for natural gas, propane or oil furnaces. |
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| You can claim a tax credit for 10% of the cost of qualified energy efficiency improvements and 100% of residential energy property costs. However, significant limits apply: |
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This credit is worth a maximum of $500 for all years combined, from 2006 to the present.
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Of that combined $500 limit, a maximum of $200 can be for windows.
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The maximum tax credit for a furnace circulating fan is $50. |
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The maximum credit for a furnace or boiler is $150.
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The maximum credit for any other single residential energy property cost is $300.
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You have to use Form 5695, Residential Energy Credits, to claim these credits.
While federal tax credits for hybrid vehicle purchases expired, you may claim electric vehicles and bring in between $2,500 and $7,500.
The Qualified Plug-in Electric Drive Motor Vehicle Tax Credit is the main federal incentive program for electric cars available in the United States. Most electric cars are
eligible for this tax credit, which reduces your federal tax burden by $7,500.
This tax credit has a phase out built into the program that is dependent on the manufacturer of the car. Once a manufacturer has sold 200,000 eligible electric cars, you won’t be able to use the tax credit when you buy an electric car from that manufacturer.Based on current sales projections, most electric car manufacturers will still be eligible for this tax credit through 2018.
You have to use Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, to claim this credit.
There may also be state and local incentives for fuel-efficient and electric vehicles, so take a close look before you make a decision.
With or without tax credits and savings, choosing green energy options is a great way to save over the long term and reduce your carbon footprint. |
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| Better yet, we advise you to use a dedicated tax professional who can guide you through the maze of tax rules and regulations and take care of all your dealing with the IRS. |
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