Tax Breaks for Saving Energy
Earth Day is April 22. This occasion reminds us to consider implementing changes to help reduce the amount of energy we consume. But "going green" isn't just good for the Earth — certain energy-saving expenditures also may qualify for generous tax breaks that are good for your pocketbook, too.
Here are some tax credits for buying and installing certain types of energy-efficient residential equipment.
Current Tax Breaks for Green Equipment
On your 2017 through 2019 returns, you may be eligible for a tax credit of 30% of expenditures (including costs for site preparation, assembly, installation, piping, and wiring) for installing the following items:
- Qualified solar electricity generating equipment and solar water heating equipment,
- Qualified wind energy equipment,
- Qualified geothermal heat pump equipment, and
- Qualified fuel cell electricity generating equipment (limited to $500 for each half kilowatt of fuel cell capacity).
These items can be expensive, so the credits can be substantial. And there are no income limits. Even billionaires are eligible. To qualify, the equipment must be installed at your U.S. residence, including a vacation home — except for fuel cell equipment, which must be installed at your primary residence. You can't claim credits for equipment installed at a property that's used exclusively as a rental.
To qualify for the credit for solar water heating equipment, at least 50% of the energy used to heat water for the property must be generated by the solar equipment. And no credit is allowed for solar water heating equipment unless it's certified for performance by the nonprofit Solar Rating & Certification Corporation or a comparable entity endorsed by the state in which your residence is located. (Keep this certification with your tax records.)
In 2020, the credit rate for these expenditures drops to 26% and then to 22% in 2021. After that, the credits are scheduled to expire. These credits can be used to reduce your regular federal income tax bill and the alternative minimum tax (AMT) if you owe it. You might also be eligible for state and local tax benefits, subsidized state and local financing deals, and utility company rebates.
Credits for Minor Energy-Efficient Installations
You can claim a more modest residential energy credit on your 2017 return if you had other qualifying expenditures last year. This break — which expired at the end of 2017 — has a lifetime maximum of $500 and covers qualified expenditures for:
- Advanced main air circulating fans,
- Natural gas, propane, and oil furnaces and hot water boilers,
- Electric heat pumps and electric heat pump water heaters,
- Biomass fuel stoves,
- High-efficiency central air conditioners,
- Natural gas, propane and oil water heaters,
- Energy-efficient windows, skylights and doors,
- Energy-efficient roofing products, and
- Energy-efficient insulation.
Claiming Your Credit
You can only claim green tax credits for expenditures on a "home," which can include a house, condo, co-op apartment, houseboat, or mobile home, or a manufactured home that conforms to federal manufactured home construction and safety standards.
Keep proof of how much you spend on qualifying equipment, including any extra amounts for site preparation, assembly and installation. Also keep a record of when the installation was completed, because you can claim the credit only for the year when that happened.
Important: It's not too late to claim your green credits for the 2017 tax year. Even if you've already filed your federal income tax return for 2017, you may be able to file amended returns to collect the tax savings. Ask your Brady Ware tax advisor for more information.
Green tax breaks change from year to year, based on technological developments and green policy initiatives in Washington, D.C. We can help you understand the ever-changing rules and maintain records to support any tax credits you claim for installing energy-saving equipment in your home.
Tax Credits for New Plug-In Electric Vehicles
The federal income tax credit for qualifying new (not used) plug-in electric vehicles is still available under the new tax law. The credit can be worth up to $7,500.
Eligible vehicles can be either fully electric or a plug-in electric/gasoline hybrid. They also must:
- Draw propulsion from a battery with at least four kilowatt hours of capacity,
- Use an external source of energy to recharge the battery (thus the term "plug-in"),
- Be used primarily on public streets, roads and highways,
- Have four wheels,
- Meet applicable federal emission and clean air standards, and
- Be used primarily in the United States.
In addition, the vehicle must be new and purchased — rather than leased. If you lease an eligible vehicle, the credit belongs to the manufacturer, and that may be factored into a lower lease payment. The credit begins phasing out over four calendar quarters once the total number of qualifying vehicles sold by a particular manufacturer for use in the United States reaches 200,000. So far, no manufacturers have crossed that line, although Tesla (with its Model 3) or General Motors (with the Chevy Bolt and Volt) might be the first, if sales continue at their current pace.
The credit can be used to offset your regular federal income tax liability and any alternative minimum tax (AMT) bill. There are no income restrictions.
Does Your Vehicle Qualify?
The credit equals $2,500 for a vehicle powered by a four kilowatt-hour battery, with an additional $417 for each kilowatt hour of battery capacity beyond four hours. The maximum credit is $7,500. Buyers of qualifying vehicles can rely on the manufacturer's or distributor's certification of the allowable credit amount.
Not all eligible vehicles qualify for the maximum $7,500 credit. Some plug-in electric/gas hybrids are only eligible for lower amounts. For example, the Ford C-Max Energi and Ford Fusion Energi only qualify for a $4,007 credit and the Toyota Prius Prime only qualifies for a $4,502 credit. This is important to know before you go car shopping.
Contact your Brady Ware tax advisor for a current list of vehicles that qualify for the credit, as well as information about state incentives for buying or leasing plug-in electric vehicles. In addition to state and local tax credits and rebates, plug-in vehicle owners might receive other perks, like free parking at certain locations, access to carpool lanes, or exemptions from fees and inspections.