residential energy tax credits

Residential Energy Tax Credits

Residential energy tax credits give you the chance to upgrade your home with renewable energy improvements and get help with the cost through a tax credit. As of now, the credits are good through 2019. They come in the form of the Nonbusiness Energy Property Credits.

However, they will gradually be reduced every year until the end of the 2021 tax year. As of this writing, the program has not been renewed.

How Do I Claim Residential Energy Tax Credits?

residential energy tax credits

The first step is to get Form 5695. You must fill this out and submit it with your tax return. Make sure you have proof that you purchased the upgrades and keep the receipts.

The IRS occasionally audits people who claim the energy tax credit and the receipts will prove that you had the work carried out.

What Qualifies Under this Tax Credit?

There are several upgrades that will allow you to claim back some of the cost of the installation. They cover a wide range of renewable energy types, including wind, solar, fuel cell, and geothermal.

Let’s look at the most common upgrades:

Solar – You can qualify for this tax credit through installing solar panels for generating electricity. You can also install a solar-powered water heater.

Take note that solar must account for half of the home’s water heating capacity. Furthermore, solar heaters designed for hot tubs and swimming pools won’t qualify.

Wind – Wind turbines can also be installed to qualify. They must generate 100 kilowatts of electricity in a residential building to qualify.

Fuel Cells – The specific fuel cells you must have installed must generate at least 0.5 kilowatts of power and must use a renewable resource to generate electricity. This mainly comes in the form of hydrogen.

Geothermal – Heat pumps that use geothermal energy can qualify. They must meet Energy Star guidelines, however.

Breaking Down the Numbers

The residential energy tax credit may only be claimed for your main residence and a second home. Fuel cell improvements only apply to your primary residence.

Including installation costs, the credit will cover 30% of the overall cost of the upgrade. There are no upper limits other than for fuel cells.

Fuel cell payouts are capped at $500 for every half-kilowatt of power capacity.

What About Other Upgrades?

The tax credits for things like insulation expired last year and haven’t been renewed. You can no longer claim credits for these types of upgrades.

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