Five Things You Should Know About Energy Tax Credits
A piece of good news if you’re planning to upgrade the energy efficiency of your home in 2018: Congress has renewed a number of tax credits to help offset the cost.

Here are five things you should know about these energy tax credits:

Credit is retroactive. Purchases made through December 31, 2017 can still be claimed as a tax credit under the renewed act. The credits are in place through 2022, with a reduction in value each year after 2019.

Big ticket items like solar, wind, geothermal, and fuel-cell technology additions are covered by these credits, and until the end of 2019 provide you with a 30 percent credit on the cost of buying and installing them. However, they must meet these guidelines to qualify:

  • Solar panels for generating electricity must be used only in the home (rather than an outbuilding like a greenhouse or tool shed).
  • If you install a solar-powered water heater it must be for inside the home and provide at least half of the home’s water-heating capacity. That means that solar heaters for hot tubs and swimming pools do not qualify for the credit.
  • Fuel cells are eligible for the credit if they rely on a renewable resource (like hydrogen) to generate power. In addition, they must generate a minimum of 0.5 kilowatts of power.
  • Any wind turbines installed for generating electricity must provide a minimum of 100 kilowatts of electricity and be solely for residential use.
  • Energy Star guidelines must be met for any geothermal heat pumps in order for the credit to apply.

Credits cover more than one home. Although the improvements made must benefit the interior of a home, some of the credits can be used in both your principal residence and a second home. One major exception is fuel-cell equipment which qualifies only in your principal residence.

Tax credits cover more than solar energy. As long as they meet the technical efficiency standards set by the Department of Energy, the following items are eligible for a tax credit. The Internal Revenue Service (IRS) breaks them down into two categories -- Qualified Energy Efficiency Improvements and Residential Energy Property Costs.

Qualified Energy Efficiency Improvements include:

  • Exterior doors
  • Some roofing materials
  • Exterior windows
  • Exterior skylights
  • Insulation

Residential Energy Property Costs include:

  • Electric heat pumps
  • Electric heat pump water heaters
  • Natural gas, propane, or oil water heaters
  • Natural gas, propane, or oil furnaces
  • Advanced circulating fans for natural gas, propane or oil furnaces
  • Natural gas, propane, or oil hot water boilers
  • Central air conditioning systems
  • Stoves that use biomass fuel only

Limits apply. Adding a Qualified Energy Efficiency Improvement to your home allows you to claim a 10 percent tax credit while a Residential Energy Property Costs addition can provide up to a 100 percent credit. That said, there are significant limits in place, including:

  • The maximum credit for all years combined is $500
  • Of the $500, only $200 can be for energy efficient windows
  • A circulating fan for a furnace has a maximum credit of $50
  • A furnace or boiler has a maximum credit of $150

Adding energy efficient items to your home will not only save you money in the long run, but can also do wonders for the planet. Claiming your credit is easy. Simply fill out Form 5695 when you file your tax return.