Energy Efficient Tax Rebate for New Construction and Existing Homes
Installing major upgrades into new construction or already existing homes for energy conservation can be a tough decision. Items like geo-thermal heat pumps, solar energy systems, small wind energy systems and fuel cells can seem relatively expensive upfront, but the energy savings are noticeable in even a short period of time.
Federal tax credits provide an added incentive to become more energy efficient, and the following home improvements are eligible for a tax credit if installed in the home and what the IRS refers to as placed into service (when the property is ready for use) before December 31, 2016.
Geothermal Heat Pumps
Geothermal heat pumps use the ground rather than air from the outside to provide air conditioning, heating, and hot water in the home. The up-front cost of a geothermal system can be high, but they use nearly 30% less heat than a standard heat pump.
Any geothermal heat pump that is labeled Energy Star Efficient qualifies for the federal tax credit. Water-to-water geothermal heat pumps do not qualify for the federal tax credit because they are not Energy Star Efficient. The geothermal heat pump is eligible for a 30% credit, including cost of installation, with no cap.
Solar Energy Systems – Solar Power Tax Credit
All solar water heaters that are labeled Energy Star Efficient qualify for the federal tax credit of up to 30% of its cost (including installation cost), with no dollar limit. There are some restrictions, however, on whether the system qualifies overall for the credit.
First of all, the property with the installed system must obtain at least half of its energy from the sun. Secondly, the credit is only eligible on the cost of the solar energy system itself, not the entire water heating system in the home.
To be eligible for the credit, be sure that the system is certified by the Solar Rating and Certification Corporation, and the water must be used in the actual dwelling to qualify. Pools and hot tubs expenses do not qualify.
Photovoltaic systems must meet certain electrical and fire codes requirements, and electricity provided must be for the residence.
Small Wind Energy Systems
Residential small wind turbines, installed to create electricity that is compatible with residential homes, also requires a large investment, but can reduce electricity rates by 50-70%. Small wind turbines also qualify for a 30% tax credit (including installation costs) with no cap. When installing a small wind energy system, be sure that the nameplate capacity is 100 kilowatts or less.
Fuel Cells and Micro Turbine System
Using fuel cells and micro turbine systems to heat a home can also save in total energy costs. In order for the system to be eligible for the federal tax credit of 30% of the cost, including installation costs, the system must have an efficiency of at least 30% and have a capacity that is no less than 0.5 kilowatts. Although fuel cells are eligible for a 30% credit, there is a total cap, based on each half kilowatt. For every 0.5 kilowatt of power capacity, the taxpayer may receive a credit of $500.00.
Facts About Home Improvement Energy Efficiency Tax Credits
- The above items must be placed in service (as defined by the IRS) by December 31, 2016.
- The tax credit for the above items can be used on a primary residence, secondary residence, or new construction.
- There is no cap on the amount of credit, up to 30% of the total cost, including installation, except in the case of fuel cells and micro turbine systems, where a cap of $500.00 per 0.5 kW of power capacity applies.
- A Manufacturer Certification Statement must be requested and supplied in order to qualify for the credit.
- Use IRS form 5695 when filing taxes.
When considering major household improvements, speak with the product manufacturer about which products qualify for current tax credits. Always keep any paperwork involved (receipts and certifications) in order to document the tax credit properly. For more information, speak with a tax accountant and visit the USA Government’s portal website.