It should come as no surprise that clean, renewable energy is becoming more popular. One factor behind that growth is ongoing government programs and incentives. In August 2022, the federal government expanded tax credits through the Inflation Reduction Act. While this act focuses on helping businesses become greener, it also benefits homeowners. This is important if you have or are planning to add “green” improvements to your home. You may be eligible for a clean energy tax credit!
But with this great news come many questions and concerns. What is a clean energy tax credit? How does it work and who can claim it? Are there any restrictions? Today, the professionals at ONIT Home are here to talk about everything you need to know. Let’s get started!
What Are Energy Tax Credits Exactly?
A clean energy tax credit is an incentive to get people to invest in alternative energy. This is done by meeting certain guidelines and reducing the amount you owe on your taxes. You can take these actions to improve energy efficiency or use non-traditional power sources. Clean energy tax credits can offset the cost of purchasing and installing green improvements to your home. For example, an improvement that costs $20,000 and qualifies for a 30% credit can provide $6,000 towards your taxes.
The federal government extended many credits through 2033 with some expiring in 2034. There are several clean energy tax credits available to citizens. In this article, we are going focus on the main two as they pertain to homeowners:
- The Energy-Efficient Home Improvement Credit
- The Residential Clean Energy Credit
Keep in mind that there may be vehicle tax credits you are eligible for too. Examples are
- The Clean Vehicle credit
- The Used Clean Vehicle Credit
- The Alternative Fuel Vehicle Refueling Property Tax Credit
All of these tax credits have gone through major changes in the last year. Those changes are designed to help families go green by saving some green! This table of clean energy tax credits from the United States Department of Energy is a great resource. It gives specific percentages and dollar amounts for all eligible home improvements. Let’s take a look at each of the main credits below.
Energy-Efficient Home Improvement Credit
You may know this as the Non-business Energy Property Credit. This clean energy tax credit was renamed in the fall of 2022. Instead of a credit worth a maximum of $500, it was amended to be worth up to $1,200. This value is an annual limit as opposed to a lifetime limit. So what does this mean? If you spread out your improvements over the next decade, you can receive a larger credit overall. Up to a total of $12,000 back on your taxes, to be exact.
In addition to the $1,200 credit limit per year, limits apply to certain items such as
- Home energy audits
- Exterior doors
- Exterior windows and skylights
- Central A/C units
- Water heaters that operate on natural gas, propane, or oil
- Furnaces or hot water boilers
- Electric panels and related equipment
There is a separate aggregate yearly limit of $2,000 as well. This means you can claim a maximum clean energy tax credit of $3,200. The aggregate limit of $2,000 applies to the following:
- Electric or natural gas heat pump water heaters
- Electric or natural gas heat pumps
- Biomass stoves and boilers
Residential Clean Energy Credit
This clean energy tax credit applies to renewable energy sources in and around the home. It’s worth 30% of specific qualified expenses through 2034. It has been modified to include battery storage technology as an eligible expense. The credit applies to items installed after December 31, 2021, and the credit percentage rate decreases in both 2033 and 2034.
Equipment that qualifies for this clean energy tax credit includes solar, wind, geothermal, and fuel-cell technology. Specifically,
- Solar energy systems for electricity and heat
- Wind turbines that generate electricity for residential use
- Energy Star geothermal heat pumps
- Fuel cells that use a renewable resource to generate power for a home
- Battery storage technologies
One thing to keep in mind is that the costs of preparing your roof for solar panels are not eligible for credit. This is because those costs are considered roofing/structural expenses instead of energy expenses. However, solar roofing tiles or shingles may qualify for the tax credit.
Alternative Fuel Refueling Property Credit
The tax credit associated with buying an electric vehicle may be great news for some homeowners. This revamped credit is worth 30% of the cost of installing a charging station at your home. It also applies to equipment used to store other alternative fuel for your car. Starting in 2023, the credit applies to “bidirectional” charging equipment purchases. This is equipment that both charges and discharges the electricity from the battery.
Who is Eligible for a Clean Energy Tax Credit?
This credit applies to new and existing homes in the US. Anyone can claim a clean energy tax credit if the home is their main residence. This means that homeowners and renters can claim the credit as long as they live there. If you own the property but do not actively live there, you cannot claim the credit. However, if you are there part-time and do not rent it to others, you may be able to claim certain credits.
There are also limitations to the credit if you use the property for business. If you use the home partly for business, there are some credits you can claim. On the other hand, property used solely for business purposes is not eligible. Also, the improvements made must meet specific standards. These standards apply to solar water heaters, geothermal heat pumps, and battery storage technology.
How to Claim a Clean Energy Credit
To claim a clean energy tax credit, you must file Form 5695 with your taxes. The credit must be claimed for the tax year the equipment was installed. Not the year it was purchased. Other considerations include joint occupancy. If you share the home with someone other than a spouse, each occupant must complete their own form.
Save Additional Money With the High-Efficiency Electric Home Rebate Program
On top of clean energy tax credits, you may be able to claim a rebate! The High-Efficiency Electric Home Rebate Program provides rebates on energy-efficient appliance purchases. To qualify, your income must be less than 150% of the median income in your area. This is because the program was designed with low- and middle-income families in mind. Families in these categories may not be able to buy major improvements. With this program, however, they can still save green by going green! Rebates may be as high as:
- $840 for a stove or oven
- $840 for a heat pump clothes dryer
- $1,750 for a heat pump for heating water
- $8,000 for a heat pump used to heat or cool a space
There are also rebates for non-appliance upgrades. They are as follows:
- $1,600 for insulation and ventilation
- $2,500 for wiring expenses
- $4,000 for a load service center upgrade
There are limits to these rebates as well, however. A rebate can’t exceed 50% of the cost of the project. This is if the income is between 80% and 150% of the median income in your area. Also, each family is limited to a total of $14,000 in rebates from the program. This program is expected to run through September 30, 2031.
Looking to Make Your Home More Energy Efficient? ONIT Can Help!
As you can see, energy efficiency doesn’t just help protect the environment. It also offers benefits for your wallet! By investing in clean energy, you can save on your utility bills and your taxes. The tax credits and rebates mentioned above are all federal incentives. But that doesn’t mean that’s all there is! Depending on your state, you may be able to claim additional credits or rebates.
If you’re ready to get started on your energy-efficient improvements, ONIT can help! We are all about simplifying and demystifying home services. From security to solar energy, we pride ourselves on taking action and providing products and technology the way our customers want them. We are known for our best-in-class customer service and exclusive deals designed to help families like yours thrive.
Our solar power systems can control your energy bill and save you money every month. We also offer simple, easy finance options to make the switch more affordable. Combine that with energy tax credits and you can see serious savings! You can rest assured that our team will work fast (but efficiently!) to make sure you can start enjoying the benefits of clean energy as soon as possible. And did we mention the increase in your home’s value?
There has never been a better time to boost your energy efficiency. Partner with ONIT today to create a better tomorrow with sustainable solar energy. Give us a call at 1-833-433-0331 to get started or to receive your free energy audit.