How You Can Benefit from $35 Billion in Residential Energy Tax Credits
The U.S. government has granted tax credits totaling more than $35 billion to homeowners since 2006 to help them improve their home’s energy efficiency. With climate change increasing and power grid reliability becoming less reliable, Congress has more reasons than ever to encourage homeowners invest in energy-saving solutions.
Two residential tax credits are currently offered by the IRS to homeowners who invest in alternative energy sources or make energy-efficient home improvements. The residential energy tax credit Efficient Property Credit (REEP) offers taxpayers almost unlimited savings while the Nonbusiness Energy Property Credit has certain limitations.
We will discuss some important points that you should know in order to take advantage of these credits, and possibly reduce your tax liability. Continue reading to find out more about tax savings and why it might be better to act earlier than later.
Internal Revenue Code IRC Section 25D: REEP credit
The largest use of REEP Credit is solar panels. The Federal Solar Tax Credit is often called the REEP Credit. This credit significantly offsets the cost of solar panels. Since 2006, the solar industry has seen a more than 10,000% increase in its value.
The REEP Credit doesn’t apply only to solar panels. Some geothermal heat pumps and small wind turbines are also eligible. These systems can also be eligible for credit, including costs associated with solar energy storage such as Tesla’s Powerwall battery.
Installations at the taxpayer’s primary or secondary U.S. residences can be eligible for REEP Credit, which can also be used to purchase new homes and houseboats. The REEP Credit does not apply to rental properties. The credit can be adjusted for the time that the taxpayer used the property during the year if he or she uses it for personal purposes.
These savings are available as long as the taxpayer is the owner of the qualified property that was in service. The ENERGY START(r) webpage provides more information about the qualifying property.
What Can I Claim?
For homeowners who want to invest in alternative energy solutions, the REEP Credit is the best way to save tax. The credit is unlimited in dollar amount, but the taxpayer cannot claim more than their regular and alternative minimum taxes.
Taxpayers can get a REEP Credit of up to 26 per cent of the cost for any qualified property (including tax or installation) that was placed into service between 2021-2022. After 2023, the credit will expire and drop to 22 percent. It is important to remember that the percent applicable depends on the year in which the property was put into service and not the year it was purchased.
Let’s take, for example, a homeowner who spends $50,000 to put in a qualified alternative energy source in his or her home. The device is then placed into service in 2022. A taxpayer can claim a REEP Credit of up to $13,000 (or 26 per cent of the property’s costs) on his 2022 tax returns, provided that the credit does not exceed his or her tax liability. Credits that exceed an individual’s tax liabilities may be carried forward into the next tax year. These savings can be combined with any reductions in homeowners’ power bills. This is a double-edged benefit!
IRC: Non-business Energy Property Credit
The Nonbusiness Energy Property Credit has more restrictions than the REEP Credit. It also has a lifetime limit, $500. Taxpayers who are looking to make small energy improvements to their homes may be eligible for this credit.
Taxpayers who are eligible may be eligible to claim a non-business energy credit of up to 10% of the qualified energy-efficient improvements. This includes exterior windows, doors skylights, roofs and insulation. Credits can also be claimed up to 100 percent for any residential energy product cost improvements. These costs include the installation of qualified heating and air conditioning, water heaters and biomass stoves. For more details to visit website filemytaxesonline.org
This credit is only available for a taxpayer’s primary residence in the United States. It cannot be claimed for installation in new homes. There are also dollar limits that the IRS places on the amount of items taxpayers can claim. Reminder: All qualifying improvements are subjected to a $500 lifetime credit. To be eligible for these credits, products must conform to the U.S. Department of Energy standards.
Summary
Two tax credits are offered by the IRS to encourage homeowners to make their homes more eco-friendly. If you are interested in home improvement, consider whether you qualify for the REEP Credit and the Nonbusiness Energy Property Credit. These credits can be used to make taxpayers feel better about going green.
