If you make energy-saving improvements in your home, you may be in line for certain tax breaks.
Strategy: Claim the residential renewable energy credit for qualified improvements. The credit is a dollar-for-dollar reduction of your tax bill.
Various forms of energy credit have expired, and some were reinstated in recent years, leaving a confusing hodgepodge of rules. You can expect legislators to revisit this issue once things calm down. Here’s where things stand at this writing:
The current residential renewable credit is eligible for solar, wind, geothermal and fuel cell technology in specified years. The available credit percentages, based on when qualified property is placed in service, are as follows:
- 30% for property placed in service after 2016 and before 2020
- 26% for property placed in service after 2019 and before 2021
- 22% for property placed in service after 2020 and before 2022
The amount eligible for the credit is the cost of alternative energy equipment installed on or in your home, including installation expenses. Some examples are solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
Unlink the prior regular residential credit, there’s no dollar limit for most types of property. However, the credit for fuel cells is capped at $500 per half-kilowatt of power capacity. For instance, installing a fuel cell with a 4-kW capacity provinces a $4,000 credit.
This tax credit is nonrefundable (i.e., it can’t be used to create a tax refund). But the unused portion may be carried over to next year to offset tax liability in 2021.
To qualify for the credit, the home must be located in the United States, but it doesn’t have to be your principal residence (unless the alternative energy equipment is a qualified fuel cell property). In other words, you might take the credit for installations on a vacation home.
Note: You can’t claim the residential solar credit for a rental property. In this case, you must live in that property for part of the year and only use it as a rental when you’re away.
What about the “old” residential energy credit? This credit expired after 2018 and isn’t currently available. But you may be able to file an amended 2018 return if you qualify for the tax break and didn’t claim it. The credit was generally equal to 10% of the cost of qualified energy-saving equipment to your principal residence like energy-efficient exterior windows and doors, certain roofs and insulation. Certain items had dollar limits.