Are you ready for the first heat wave of the summer? You can cool things down and get a tax break to boot.
Make energy-saving improvements to your home. Many costs will qualify for the residential energy tax credit – a dollar for dollar reduction of your tax bill – on your 2021 return.
This residential energy credit has expired and been reinstated multiple times in the past. The Consolidated Appropriations Act (CAA) extended the credit again through 2021.
The residential credit is equal to 10% of the cost of qualified energy saving items added to your principal residence. But there’s a lifetime limit of $550 and a special dollar limit on certain types of expenses. The list of expenses eligible for this credit includes:
- Insulation materials.
- Exterior windows and skylights.
- Exterior doors.
- Central air conditioners.
- Natural gas, propane and oil water heaters or furnaces.
- Hot water boilers.
- Electric heat pump water heaters.
- Certain metal roofs.
- Biomass stoves.
- Advanced main air circulating fans.
Currently, the credit for windows is capped at $200; furnaces and boilers at $150; air conditioners, air source heat pumps and biomass stoves at $300; and advanced main air circulating fans at $50. What’s more, the lifetime limit of $500 is reduced by energy credits claimed in prior years.
More good news: The CAA also extends another credit for energy-efficient property. This alternative credit is generally available for residential solar panels or water heating panels plus fuel cell projects, small-wind energy projects and geothermal heat pumps.
The credit rate for energy-efficient property expenditures was scheduled to decrease from 26% to 22% of the cost of qualified expenses or projects placed in service 2021. Now the CAA keeps the 26% credit in place for property placed in service in 2021 and 2022 and allows a 22% credit for property placed in service during 2023.
Also, the new law adds biomass fuel projects to the list of eligible expenses for this credit.
The credit is still set to expire after 2023.