Upgrading your home to be more energy efficient can save you money over time, but the upfront cost of the upgrades may be steep. And while many of the energy upgrade tax credits have expired in the last couple years, there is one still available that can help taxpayers offset the costs of improving the energy efficiency of their home – the Residential Energy Efficient Property Credit.
Residential Energy Efficient Property Credit
This tax credit will provide the taxpayer a nonrefundable credit for 30% of the cost of the upgraded equipment that is installed in their home, including the cost of installation. The upgrades can be made to any of the taxpayer’s homes (other than a rental home), including their primary residence, a vacation home, a house boat, a condo, a mobile home, or the like, as long as they live in it for some portion of the year. And in fact, the taxpayer can choose to upgrade more than one of their homes in the same tax year; currently, the 30% tax credit it not limited. Two types of energy upgrades are eligible for this tax credit: qualified solar electric property and qualified solar water heating property.
Qualified Solar Energy Property
Any upgrade that allows the taxpayer to use solar energy to generate electricity would qualify for this tax credit. Eligible expenses would even include the costs to make changes to the house’s structure if it was necessary to install the solar panels.
Qualified Solar Water Heating Property
A water heater would qualify for this credit as long as the solar equipment generates at least half of the energy that the home uses to heat water. The equipment must be certified by the Solar Rating Certification Corporation or a comparable organization that is endorsed by the taxpayer’s home state.
One stipulation of this tax credit is that you must own the solar panels that you install; solar leases would not be eligible for the credit.
Because this tax credit is nonrefundable, some taxpayers may not be able to utilize the benefit fully in the current tax year. Luckily, any unused credit can be carried forward to future years.
Look to the Future
The applicable credit is currently at 30% of the costs of the upgraded equipment, but this percentage is set to decline over the next few years and expire fully in tax year 2022. The percentage will remain at 30% through 2019. In 2020, it will be reduced to 26%, and in 2021, the last year the credit will be available, it will be reduced to 22%.
If you have been considering purchasing solar equipment for your home, 2018 may be the optimal year for you to make this upgrade. While it looks like this tax credit is here to stay through 2021, there is no guarantee it will remain until then. If you would like to discuss the intricacies of this tax credit and see if you could benefit from it in the current year, our Spire Group professionals can help.