This tax credit is often scheduled to end, but it has repeatedly been renewed and currently expires December 31st, 2021. This means it is still available for use by homeowners for their tax year 2021 tax return. But before we talk about that credit let’s talk about another which currently expires in 2024. Some taxpayers know that they can get a tax credit for solar panels, but there are more items that qualify for energy based tax credits for homeowners.
Residential Energy Efficient Property Credit
For 2021 improvements approved for this category can provide a credit worth 26% of your costs. This is where solar panels fit in. The additional improvements include some other forms of qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, and fuel cell property. The only property that has a limit for the credit is the fuel cell property which is limited to $500 for each half-kilowatt capacity of the property.
This credit can provide thousands of dollars of tax credit that can even be carried over to later years. However, most taxpayers aren’t in the position to claim this credit. There is another credit that many and probably most homeowners can use to their advantage.
The Nonbusiness Energy Property Credit
Unfortunately this credit is a lifetime credit. You can only get a total of $500 for all tax years after 2005. I wouldn’t go out and make a bunch of energy efficient improvements just to qualify for this credit. But if you are spending the money already, then it makes sense to take advantage of this credit and save yourself up to $500. This credit has more complicated rules than the Residential Energy Efficient Property Credit.
A homeowner may be able to take the credit equal to the sum of:
- 10% of for qualified energy efficiency improvements installed during 2021, and
- Any residential energy property costs paid or incurred in 2021.
But there are more limits for the qualified energy efficiency improvements: A combined total limit of $200 for all windows since after 2005. And some other improvements have additional limits as well. Qualified energy efficient improvements include insulation materials, exterior windows and skylights, exterior doors, and very specific roofing.
Residential energy property includes items such as certain electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane, or oil water heaters; and stoves that use biomass fuel.
Also, qualified natural gas, propane, or oil furnaces and qualified natural gas,propane, or oil hot water boilers.
And finally certain advanced main air circulating fans used in natural gas, propane, or oil furnaces.
Qualifying criteria typically includes energy ratings and efficiency ratings.
If you take this credit you’ll want to keep proof of purchase and qualification with your tax document and tax return. You can find more details on the qualifying criteria and how to take the credit here.
If you would like to discuss your tax situation you can schedule an appointment with me here.
