With tax season just about to wrap up for this year, it’s never too early to start thinking about next year’s tax season. Whether you are in the market for a new home or have your sights set on making some updates to your existing home, one great way to save on your taxes is to look for some green energy features that offer tax credits. According to Intuit Turbo Tax, homeowners claim the credits by filing Form 5695 with their tax returns.
Residential Renewable Energy Tax Credit
How does the residential renewable energy tax credit work?
By installing renewable energy equipment in your home you may qualify for a credit of up to 30% of your total cost. The percentage you can claim depends on when you installed the equipment. As a credit, you take the amount directly off your tax payment, rather than as a deduction of your taxable income. This program is ongoing until 2024 and must be re-approved by Congress for it to continue.
What home improvements qualify for the tax credit?
Generally, the main categories for the Residential Renewable Energy Tax Credit include upgrades for things like solar panels, solar-powered water heaters, wind turbines, and geothermal heat pumps. These are big ticket items and not all homeowners will have an opportunity to make such large (and often expensive) overhauls of these home systems.
Not to worry! There are other ways to tap into effective energy-saving home features that will also qualify for tax savings.
Nonbusiness Energy Property Tax Credit
The IRS basically breaks down these credits into two categories: qualified energy efficiency improvements and residential energy property costs. The first includes exterior doors, windows, and skylights, as well as insulation and some roofing materials. The second includes improvements like electric heat pumps, air conditioning systems, and water heaters. Other features like natural gas or propane water heaters, boilers, or furnaces. Homeowners may claim up to 10% of the cost of these improvements with a maximum credit of $500 in total.
Environmentally Friendly (Non-Tax) Incentives
Perhaps installing solar panels or replacing an entire home’s worth of windows isn’t in your budget or wheelhouse. Even without seeking tax advantages, there are still practices nearly all homeowners can pursue to take a more environmentally friendly approach to homeownership.
- Consider purchasing EnergyStar appliances or light bulbs
- Add faucet aerators and install efficient shower heads
- Run appliances like dishwasher and laundry machines only when full
- Unplug fully charged devices
- Caulk and/or weatherstrip window seals
- Use green air filters
- Lower water heater temperature
- Use a smart power strip
- Switch from single-use items to reusable water bottles, shopping bags, and cloth napkins
Whether you make big, sweeping home improvements that allow you to take advantage of tax credits or simply start by taking small, sustainable steps toward a smaller carbon footprint, any action taken is a step toward taking better care of our planet.
For more information from the experts on tax credits, please check out Energy Incentives for Individuals: Residential Property Updated Questions and Answers from the IRS.