Weather the Storm with These Winter Tax Tips

With the winter weather comes colder temperatures and higher heating bills. While thinking about your utility bill won’t bring a smile to your face, you can take advantage of some generous tax credits offered by the IRS to soften the blow.

In an attempt to reduce energy consumption, and to expand the use of clean energy, tax credits are in place that will enable you to lower your tax bill when you file your taxes. Let’s see what they are.

Residential Energy Efficient Property Credit

The Residential Energy Efficient Property Credit is a tax credit worth up to 30% of the cost of alternative energy equipment installed on or in your home. That includes solar hot water heaters, solar energy systems, wind turbines and fuel cell property.

To qualify for the credit, your home must be in the US. The home doesn’t need to be your primary residence, unless you are installing a qualified fuel cell property, so this credit is available to second and vacation homes.

The Residential Energy Efficient Property Credit has no dollar limit for most types of property, however if the amount of the credit is more than the amount of tax that you owe, you can carry the unused portion of the credit forward and apply it to next year’s tax return.

As it now stands, the Residential Energy Efficient Property 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)

Non-business Energy Property Credit

This credit expired at the end of 2014, but with Congress last vote the tax credit has been extended through 2016.

This credit is calculated in two parts:

1. Part of it is worth 10% of the cost of certain qualified energy-saving items you add to your primary residence during the year, which includes insulation, windows, doors and roofs.
2. Part of the credit is for the actual cost of certain property, which can include water heaters and heating and air conditioning systems.

The credit amount for each type of property has a different dollar limit, but the total allowable credit has a maximum lifetime limit of $500, of which $200 can be used for windows.

The home must be located in the US, and you must have a written certification from the manufacturer that their product qualifies for this tax credit. The certification may be available in the product packaging, or it may be on the company website. If it isn’t, you’ll have to specifically request that they furnish you with a copy of the certification. The certification is not required to be included with your tax return, but you must keep a copy of it with your tax records.

No one knows if Congress will extend the non-business energy property credit again so you may want to put in that energy efficient insulation you’ve been considering before the end of the year.

You can’t do anything about the cold weather, other than find ways to keep warm. But while you’re doing that, you can also focus on purchasing energy efficient equipment, either for your home or in the form of a qualified motor vehicle, that will provide a reward in the form of a generous tax credit when you file your taxes.

Don’t worry about knowing these energy efficient credits.  TurboTax will ask you simple questions and give you the tax deductions and credits you deserve based on your answers.