As part of the American Recovery and Reinvestment Act of 2009, the U.S. government and the IRS created a number of Federal tax credits for those who chose to make certain energy efficient improvements to their primary homes.  The list of eligible upgrades included:

  • Cooling/heating systems, including geothermal heat pumps, biomass stoves, and most other types of heat or cooling
  • Insulation
  • Water Heaters (nonsolar)
  • Windows
  • Roofs – some of the newest roofing materials can reduce the inside temperature by up to 100 degrees Fahrenheit

In order to qualify for these credits, the items purchased had to be “Energy Star®” rated. The tax credits were also capped at approximately $500 in most instances, but under certain conditions, a taxpayer may have been eligible to receive more money.

Most Tax Credits Have Expired

While these tax credits were extended once by the Federal government, the clear majority of them expired on December 31, 2016. So, how does this affect taxpayers? Does this mean self-aware individuals can no longer claim the upgrades they made in 2016 or earlier? No, but it does mean that individuals should have filed IRS Form 5695 with their taxes this year.

If a taxpayer failed to file Form 5695 with his or her 2016 taxes, he or she can file an amended tax return. This will allow him or her to claim all eligible upgrades and receive a refund from the IRS if one is due. However, taxpayers should not procrastinate as the IRS is only required to allow individuals to amend their taxes for up to three years from the date they filed their original tax refund paperwork by filing an IRS Form 1040X.

Going Forward

At the current moment, the Federal government is showing no interest in restoring these energy saving tax credits to those who are willing to invest in making their homes more energy efficient. The only area of energy efficiency that still offers taxpayers a way to cut their tax obligations is solar energy systems.

So, what part of solar energy systems are still covered under the Energy Efficient Tax Credit? Currently, this tax credit is offered for those who choose to install solar panels and those who choose to install solar hot water heaters. Which while it may encourage more people to install these systems, this change is likely to cause many not to upgrade the rest of their homes as the cost may be prohibitive without the tax credits to help offset the intital expense.

The Solar Energy Tax Credit

The tax credits for installing solar panels or solar hot water heaters varies on a sliding scale. For those who make the improvements by December 31, 2019, the tax credit is 30 percent with no upper limit. For those who make the upgrades by December 31, 2020, the tax credit drops to only 26 percent with no upper limit. Finally, for those who make their improvements by December 31, 2021, the tax credit is a mere 22 percent, again with no upper limit. What happens in 2022? After this, the tax credits are scheduled to expire, and there is no sign that the government has any plans in the works to replace them.

One thing to keep in mind is that taxpayers need to hang on to a copy of each item’s Manufacturer’s Certification Statement as well as any receipts or itemized contractor’s bills to include when filing their taxes. If one needs more information on installed equipment, he or she can visit the Energy Star website.

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