In fact, there are a range of federal tax credits available that run the gamut from installing a geothermal heat pump to installing new insulation. If you’ve recently made improvements to your home, or are considering it, check the list of available tax credits and make sure to claim the ones you qualify for.
Green Energy Tax Credits
The following credits for energy updates to your home are available for existing homes as well as new construction through the end of 2016. If costs are associated with providing energy to a swimming pool or hot tub, they are not eligible for any of these credits.
1. Fuel Cells
Fuel cell systems are a relatively new, clean energy technology, converting stored fuel into electricity and/or heat. They significantly reduce the amount of carbon dioxide your home produces, thus shrinking your home’s carbon footprint to about one-third that of a normal home. However, fuel cell systems are often very expensive to purchase and install ($50,000 is not unheard of). To help offset this, you can take a credit of 30% of the cost of qualified fuel cell property installed in your primary residence, up to $500 for each half-kilowatt of capacity.
Per the IRS, “the fuel cell property must have a nameplate capacity of at least one-half kilowatt of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.”
2. Solar Energy Systems
If you live in a sunny region, a solar water heater or photovoltaic system might be the ticket to lower energy costs. Installing a solar system allows you to take a credit of 30% of the cost of both the purchase and installation, with no upper limit. Installing solar panels as a structural roofing component does not disqualify you from taking the credit.
A qualified solar water heater must derive half of the energy to heat water from the sun, and be certified by the Solar Rating and Certification Corporation or a similar entity endorsed by the state government where your home is located. The home where a solar energy system is installed does not have to be your primary residence.
3. Residential Wind Turbines
If you live in a windy area, a small wind turbine is one way to generate electricity for your home. You can receive the tax credit for a turbine installed at your primary or secondary home. This tax credit is worth 30% of the cost of parts, labor, and installation.
4. Geothermal Heat Pumps
With a geothermal heat pump, any landowner can access the natural heat emitted by the earth’s core and use it for energy needs. Understandably, the pump and installation can be costly ($30,000 is not unheard of). But you can get a tax credit for up to 30% of the cost of parts, labor, and installation with no upper limit, as long as the heat pump meets the requirements of the ENERGY STAR program in effect at the time of purchase. The pump can be installed at your main home or a secondary residence.
If you’ve installed any of the items below, you may be eligible to receive a credit from the cost of installed improvements. However, upgrades must apply to your primary residence – you cannot get deductions for improvements to rentals or new construction. And the maximum credit you can take for all improvements is $500, with a maximum credit on all windows installed of $200.
If you’ve taken these credits prior tax years (since 2005), those amounts reduce your maximum allowable credit this year. If in past tax years you’ve taken $500 or more in residential property energy credits, you likely won’t qualify to take any of these credits in 2015. Each credit is applicable through the end of 2016.
5. Windows, Doors & Skylights
If you replace doors, windows, or skylights with energy-efficient models, you may be eligible to get a tax credit of 10% on models that meet energy efficiency requirements. For instance, windows and skylights must meet or exceed ENERGY STAR requirements. Do not include the cost of installation when calculating the credit.
6. Non-Solar Water Heaters
If you’re not ready to go solar, but still need a new water heater, get an energy-efficient natural gas, propane, or oil water heater. The credit is worth up to $300, and you may include labor costs for installation.
7. Reflective Roofs
Paint your metal roof with an approved reflective paint or use approved reflective granules on your asphalt roof, and your home’s temperature will decrease along with your tax bill. The credit is worth 10% of the cost of materials, do not include installation costs when figuring the amount of the credit.
Adding extra insulation to your home can be an effective way to lower your heating and cooling bills. Various types of insulation can be used to claim the credit, including fiberglass, polystyrene foam boards, or spray foam, as well as costs for any vapor retarder or seal to limit infiltration. The credit is 10% of materials; installation costs do not count toward the credit.
9. HVAC Systems & Upgrades
Your heating and cooling systems use a lot of gas and electricity in your home. Therefore, improving their efficiency can reduce your bills substantially and net you a tax credit.
- Advanced Main Air Circulating Fan: Get up to a $50 credit for purchasing a fan to more efficiently move air through your furnace and duct system.
- Electric Heat Pump: A popular option in moderate climates, this system moves air between the outside and inside of your home to heat it in the winter and cool it in the summer. It’s up to four times more efficient than a regular HVAC system and costs a lot less. You can get a credit of up to $300 for purchasing and installing a system.
- Central Air Conditioning Systems: If you do not live in a moderate climate, you can still purchase an energy-efficient central air system and get up to a $300 credit based off its cost, including installation. Your HVAC contractor can provide a certification stating whether your system qualifies.
- Gas, Propane, or Oil Furnace, or Hot Water Boiler: If you purchase an energy-efficient furnace or hot water boiler, you’re eligible to get a credit of up to $150 based off its cost, including installation.
- Biomass Stoves: Before the green movement, these were more commonly called “wood stoves.” However, you can now also purchase models that burn plant fibers, agricultural waste, and other items that were formerly headed for the dump. You can get a $300 tax credit on the cost of purchasing a new stove, as long as its thermal efficiency rating is at least 75%.
It’s a win-win situation when you realize that saving the environment and lowering your bills can also help you save money. When you upgrade your home, go the energy-efficient route to reduce energy bills and your taxes. Don’t forget to check with the salesperson to make sure you buy the correct equipment to qualify for available tax credits.
Did you make any energy-efficient home improvements this year? Which credits are you claiming?