As the days draw shorter and Daylight Savings Time comes to an end, we’re reminded that the end of the year is almost here.
As the temperature drops, you’ve probably already turned on the heat for the first time this fall (we just got our whole system serviced in preparation) and it’s time to start thinking about energy bills. Winter is coming and you need to be prepared!
The good news about saving energy is that you can also save money at the same time and see a tax benefit. A few years ago, we replaced all the windows in our home because they were falling apart and leaking. We were able to leverage a tax credit to help defray the cost and reduce our energy bills. It was a win-win situation.
You want to do what you can to use less energy year round, but especially during the winter. There are a number of energy-saving ways to improve your home’s tax efficiency. Here are two of the residential energy tax breaks available on your 2016 taxes:
Non-Business Energy Property Credit
Upgrading your primary residence with energy-saving improvements can mean a tax credit. This means you have until the end of the year to make improvements if you want this credit (hurry!).
This tax credit allows you to claim 10% of the cost of certain energy-saving efforts, up to $500. The following items are included in this tax credit (verify that they meet certain energy-efficiency standards and are properly qualified):
- Water heaters
- Air conditioning and heating systems
Since this is a credit, you will receive a dollar-for-dollar reduction in the amount you owe on your taxes.
The PATH Act of 2016 extended this tax provision through the end of 2016. We don’t know how Congress will vote when it comes time to extend this provision again so if you are considering making energy efficient improvements like insulation, doors, or water heaters you may want to make those improvements before December 31, 2016 and save on your taxes.
Residential Energy Efficient Property Credit
This is a tax credit that can be quite valuable. You can receive 30 percent of the cost of alternative energy systems and equipment installed for your home. There is no limit on the credit, which means that you don’t have to worry about a cap.
It’s important to note that this credit isn’t refundable, so you won’t get money back if the credit is worth more than what you owe. However, it is possible to carry the credit forward to the next year, so it isn’t wasted.
If you have a $2,000 credit, but only owe $1,500, you can apply the $1,500 this year, and then carry the remaining $500 forward, reducing your tax liability next year.
Qualified systems include solar cells and panels, solar hot water heaters, wind turbines, and geothermal equipment. Installation in your principal home and second home qualify just make sure that you check to see if the system meets the requirements.
Tax credits for Solar Energy Systems are available at 30% through December 31, 2019. The credit decreases to 26% for tax year 2020; drops to 22% for tax year 2021 then expires December 31, 2021. The 30% residential energy efficient property credit for fuel cell property, small wind energy property and geothermal heat pump property expenditures will expire after 2016 unless Congress votes to extend them.
Daylight Savings Time was extended in an effort to save energy to some degree. When Daylight Savings Time coming to an end, you can prepare for higher costs.
One way to offset those higher costs is to make your home more energy efficient year-round. If you plan it right, your efforts to make your home more efficient can pay off with a tax credit.