Think Green? Think Tax Credits

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Saving on the energy bill sounds good to any American who cares about a healthy personal budget. It’s also something great for those who worry about the environment. Uncle Sam is eager to give you some credit if you’re on the environment’s side and want to save some energy. And by credit we mean tax credit. Interested? Let’s get started.

The government created two different tax credits for residential energy consumers. The Nonbusiness Energy Property Credit (refers to window, insulation or boiler costs, only for existing constructions) and the Residential Energy Efficient Property Credit (refers to alternative energy investments, including structures that are being built).

You can normally go for a credit of up to 30% of your investment (but not more than $1,500 in certain cases) and save a lot of your energy consumption and costs. In order to claim your credit, you have to file Form 5695 (read our comprehensive step by step guide on how to file Form 5695).

The first condition is that the property for which you claim the credit is your home (in some cases it has to be your main home) and is located in the United States.Your main home is where you live most of the time (a house, an apartment, a house trailer, a mobile home or a houseboat with sleeping, sanitary and cooking facilities). Even if you temporarily leave that home due to special circumstances (illness, education, business, military service or vacation), it will not change the “main” status of your home.

NonBusiness Energy Property Credit

This credit will cover 30% of what you paid in 2019 for certain energy efficiency improvements and residential energy property on your main home. It is limited to $1,500. The accepted improvements are insulation materials or systems designed to reduce the heat loss or gain, for example exterior windows or exterior doors. For windows and doors the credit is limited at 10% of the cost, up to $500; windows being capped at $200.

Other example are roofs (metal or asphalt with “appropriate pigmented coatings or cooling granules which are specifically and primarily designed to reduce the heat gain of such dwelling units”, as the IRS puts it). For roofs, the credit is 10% of the cost, but not more than $500.

Residential Energy Efficient Property Credit

You can claim a 30% credit from the expenses for installing solar water heating devices, solar electric materials, small wind turbines or geothermal heat pumps in your main or secondary home. The credit does not have an upper limit. In the case of fuel cell devices, however, you will only get a maximum $500 credit for each half-kilowatt you installed.

This credit refers to several types of installations. For example, property that uses solar energy to generate electricity for use in your home, including costs relating to a solar panel, a roof or part of a roof. In the case of solar water heating property, it refers to installation of devices that heat water for use in your home if at least half of the produced energy is obtained from the sun. The credit is also useful if you installed a qualified geothermal heat pump. What does that mean? Any device that uses the ground or ground water as a thermal energy source, to heat your home, or as a thermal energy sink, to cool your home.

How about that beautiful outdoor pool you just installed? Well, the government thinks that the pool (scientifically named by the IRS as “energy storage medium”) does not qualify for any energy saving tax credit. Neither your hot tub does. The reason is that the pool and the tub do not have the function of “energy storage”.

You can read more about the specifics of a greater range of energy efficient installations on the IRS website. In some cases, the installations have to comply with the Energy Star program requirements in order to be eligible for the energy tax credits.