There are a lot of good reasons for making your home more energy-efficient - especially when it comes to your federal taxes. Those upgrades make you eligible for the Residential Energy Credit that will not only help lower your energy bills and reduce your carbon footprint but lower your tax burden as well.
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The Residential Energy Efficient and Nonbusiness Energy Property Tax Credits can help lower your tax bill
This year, taxpayers can once again claim the Residential Energy Efficient Tax Credit and the Nonbusiness Energy Property Tax Credit on their federal tax return. These are fairly generous credits that have been reactivited, updated and extended beyond 2025.
For the 2022 tax year, the Residential Energy Efficient Tax Credit offers taxpayers up to 26% of the purchase and installation cost for solar, wind, and geothermal equipment in their principal residence as well as a second home. Best of all, there is no limit on the amount of the credit you can take for this equipment. The Inflation Reduction Act of 2022 (IRA) increased the percentage to 30% beginning 2023 and extended the credit through 2035.
The Nonbusiness Energy Property Tax Credit has also been extended through December 31, 2022. In 2023 and beyond the credit changes substantially with an annual $1,200 maximum, new roofs were removed from the building envelope and added air sealing insulation and changes will no longer be limited to a main home.
You can claim this credit using Form 5695. But, it’s important to note that the tax credit is limited to how much you owe in taxes. So, while you cannot get a refund claiming the Energy Credit, you can carry the balance of the credit forward to the next tax year.
Qualifying for the Renewable Energy Tax Credit
In order to claim the Residential Energy Efficient Tax Credit, you must buy and install specific renewable energy equipment in your primary residence or second home.
- Solar panels. The panels must be used to generate electricity for your home.
- Solar-powered water heaters. This qualifies if half of your home’s water heating capacity is solar and the heated water is used in your home. You cannot claim solar heaters used for swimming pools or hot tubs.
- Wind turbines. You can claim turbines that generate up to 100 kilowatts for your home.
- Geothermal heat pumps. Claim these pumps if they meet federal Energy Star guidelines.
- Fuel cells. Qualifying cells rely on a renewable resource, usually hydrogen, to generate at least 0.5 kilowatts of power for your home.
Nonbusiness Energy Property Tax Credit extended through 2022
As part of the Inflation Reduction Act of 2022 (IRA) the Nonbusiness Energy Property Tax Credit has been extended through tax year 2022.
This credit allows taxpayers to claim a credit of 10% for the cost of upgrading to qualified energy-efficient improvements to their homes. The credit for energy-efficient upgrades is limited to a lifetime maximum of $500, including up to $200 for windows, $50 for a furnace circulating fan, and $150 for a furnace or boiler. This includes home insulation, exterior doors and windows, and certain types of roofing materials.
Taxpayers can also claim a credit up to $300 for energy saving costs to their homes, which include electric heat pumps; central air conditioning; water heaters, furnaces, or boilers fueled by natural gas, propane, or oil; and stoves that use biomass fuel.
The Nonbusiness Energy Property Tax Credit is limited to a lifetime total credit of $500. This means any credit taken in prior years for any of the improvements eligible for the credit reduces the $500 total. This credit is also nonrefundable.
Keep an eye on your taxes
Tax laws change all the time, both federal and state. For example, the Nonbusiness Energy Property Tax Credit and Residential Energy Efficient Tax Credit have been updated for tax years beginning January 1, 2023 through December 31, 2035. Working with a Tax Pro that is knowledgeable about the latest tax laws, including new or expiring credits and deductions, is a great way to make sure you’re getting everything that you deserve.
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