If you're searching for ways to reduce your energy bills while also helping the environment, look no further than energy tax credits. These credits incentivize homeowners and businesses to invest in energy-efficient upgrades such as solar panels, insulation, and energy-efficient appliances. Discover how to claim these benefits and start making an impact on the world and on your finances.

The Overview

The U.S. government provides energy tax credits to individuals and organizations that invest in renewable energy and energy-efficient products to promote positive energy use and efficiency. These credits offer a dollar-for-dollar deduction on the taxpayer's bill.

The U.S. government offers four main types of incentives to encourage individuals and businesses to invest in renewable energy and energy-efficient technologies.

Residential Renewable Energy Tax Credit

This credit allows homeowners to claim a benefit for investments in renewable energy technologies like solar panels, wind turbines, and geothermal heat pumps. There are a few different popular benefits that fall under this category.

There is a federal residential solar energy credit that homeowners can claim when they install solar panels. This offer started in 2017 and will continue to be offered until 2034. You are responsible for all costs associated with installation and maintenance, but the government will give you a 26% tax credit based on the panel’s price.

Credits are also available when installing energy-efficient windows, doors, skylights, water heaters, and biomass stoves.

Energy-Efficient Home Improvements Tax Credit

This credit provides up to a $1,2000 lifetime credit after January 1, 2023. You can make many improvements to be eligible for this benefit.

Suppose you install any of the following, which match the criteria listed under the Energy Efficiency Requirement section from the IRS. In that case, you will be offered a 30% tax credit based on the price you paid for the installation and purchase and a $600 tax credit per item installed.

• Central air conditioning
• Natural gas, propane, or oil water heaters
• Natural gas, propane, or oil furnaces
• Panel-board improvements/replacements

Business Energy Investment Tax Credit (ITC)

This credit offers a federal corporate tax incentive for commercial, industrial, utility, and agricultural sectors on eligible technologies such as solar water heat and photovoltaics. To be eligible for ITC, you must meet a few requirements. These include operating in the U.S., using new or limited previously used equipment, and not being leased to a tax-exempt entity.

The following projects are eligible for an ITC tax exemption.

• Solar PV panels
• CSP equipment used to generate electricity or heat/cool spaces
• Installation costs
• Step-up transformers
• Energy storage devices
• For projects 5 MW or less

Electric Vehicle Tax Credit

This credit offers up to $7,500 in the form of a tax credit to eligible income earners who purchase certain electric vehicles that meet price and battery assembly restrictions.

To be eligible for the total $7,500 Electric Vehicle Tax Credit in the tax year 2022, clean vehicles must meet the following requirements.

• Have an external charging source.
• Have a gross vehicle weight of fewer than 14,000 pounds.
• Be made by a manufacturer that has sold less than 200,000 EVs in the U.S.

The taxpayer must also be using the vehicle for their own use, not resell it, and must drive it primarily in the U.S.

How To Claim

If you're using an online tax filing tool, it will likely prompt you to enter any energy-saving home improvement details. Providing all the necessary information regarding your upgrade is crucial to maximizing the credit amount. Be sure to include all qualified improvements made in the tax year.

Similarly, if you have an accountant to complete your taxes, ensure you inform them of all upgrades that may qualify for energy tax credits. An experienced tax preparer will understand which home upgrades qualify for energy tax credit and report them correctly, maximizing the credit's benefit on your tax return.

If you're old-school and enjoy filling out forms by hand, you must complete Form 5695 for residential energy credits. This form has two parts, and the credit we're interested in is at the bottom of Part II of the form. It is best to have your tax documents, including proof of your energy-efficient upgrades, by your side when filling out this form.

Ensure your situation meets all the eligibility requirements to get the most out of your tax credits. If you need assistance, use Form 5695 or contact the IRS with any questions about your energy efficiency taxes.

Conclusion

Claiming energy tax credits is a straightforward process that can significantly reduce your tax burden. It is important, however, to stay informed about the latest news and eligibility requirements for these credits to ensure that you can take maximum advantage of them. With the right knowledge, upgrades to your home or business can save money and contribute to our planet's future.