For most of us, making ecofriendly adjustments to a home means more than just cutting back on paper towel usage and using a programmable thermostat. But bigger changes can be pricey, but long-term, making upgrades that minimize energy consumption can really pay off. Not only will environmentally-friendly tweaks potentially shrink your energy costs, but you also may be eligible for a residential energy credit when tax season rolls around.
Homeowners who make energy-efficient upgrades to their homes or include energy-efficient products in their plans for new construction may qualify for two types of residential energy credits: the residential energy-efficient property credit and the nonbusiness energy property credit.
The residential energy-efficient property credit
This credit is mainly for installing energy-related products, including geothermal heat pumps, solar water heaters, solar panels, small wind turbines, and fuel cells. Installing energy-efficient products can make sense financially: The residential energy-efficient property credit could be worth up to 30% of the total cost of installing certain renewable energy sources in your home.
This credit is applicable for newly constructed homes and existing homes that make use of renewable energy sources, including solar energy and geothermal heating solutions. You can include installation costs in the total cost you claim when you file. Plus, there is no cap to the credit you can receive. You can also file for this credit even if the home receiving these upgrades is not your primary residence (with the exception of fuel cells, which count toward a credit only if they are installed in a primary residence). The residential energy-efficient property credit is only valid through December 31, 2016, however, so any upgrades must be made before that deadline.
The nonbusiness energy property credit
This credit is for energy-saving upgrades to existing homes (think: energy-efficient insulation or windows, metal or asphalt roofing, and biomass stoves). The cost of labor and installation does not count toward this residential energy credit, and there is a lifetime cap of $500 in credits. When it comes to determining whether an energy-efficient upgrade qualifies for a residential energy tax credit, Energy Star is the gold standard. You can also check out the U.S. Treasury Department’s guide to claiming the residential energy credit or consult with a tax professional. Once you’re ready to file, use Form 5695 to document your upgrades and claim your residential energy credit.