Fall is here and if you’re remembering your heating bills from last winter, you probably are already thinking about what you can do to cut that bill as the temperature drops. Today, we will take a look at tax deductions and credits that help save you money while you make your home a bit more energy efficient.
Before we get into specifics, these deductions act to reduce your taxable income, and the net savings you see will depend on your marginal tax bracket. For example, $8,000 of mortgage interest might save you $2,000 in tax if you are in the 25% bracket, but only if you are able to itemize your tax deductions. On the other hand, a tax credit is a direct reduction of your tax bill, no itemizing required.
Residential Energy Efficient Property Credit
The Residential Energy Efficient Property Credit is a hefty credit for making energy improvements to your home and offers a generous credit worth up to 30% of what you spent on solar hot water heaters, solar power (the photovoltaic panels you are starting to see on roofs) and wind turbines. If the credit is more than your total tax bill for the entire year, the remainder is carried forward to next year. The installation of these systems must be in the US, but can be at a home that’s not your main residence.
Each state has its own rebates which help to reduce your cost. Check out the Database of State Incentives for Renewables & Efficiency to see what your state offers. With the cost of electricity rising, and the cost of solar panels continuing to fall, it makes sense to see if this is a wise purchase for your house and the tax credit may tip the math to favor going solar or simply make a good deal better.
Non-Business Energy Property Credit
The Non-Business Energy Property Credit, which was worth 10% of the cost, and gave taxpayers up to a $500 lifetime limit on qualified energy efficient items installed in their homes, like qualified insulation, windows, doors, and roofs, expired on December 31, 2016. At this time we don’t know if there are any plans to extend the tax credit, but similar to all tax laws, we will keep you updated with any additions or changes you need to know about.
Don’t worry about knowing these tax laws. TurboTax will ask you simple questions about you and give you the tax deductions and credits you are eligible for based on your entries. Do the math and see if going ‘green’ is not just good for the planet, but for your wallet, too.