Energy-efficient products might cost more than other models, but they essentially pay for themselves in reduced home energy costs, according to the U.S. Environmental Protection Agency.
Federal income tax credits can add to homeowners’ savings. Credits for five types of alternative-energy systems, like solar water heaters, are available through the new year.
That means taxpayers who purchase one of these systems this year or next year can apply the credit to their 2015 or 2016 personal income tax bill from the Internal Revenue Service — depending on when the taxpayer incurred the qualifying expense. This Residential Renewable Energy Tax Credit, as it’s technically known, expires Dec. 31, 2016.
As Money Talks News founder Stacy Johnson explains in the video below, a tax credit is even better than a tax deduction:
“A deduction just lowers your taxable income, but a credit? That lowers your tax bill. It’s like money in the bank.”
The Residential Renewable Energy Tax Credit is worth up to 30 percent of the expense of an alternative-energy system, including installation and labor costs.
To be eligible for the credit, taxpayers must purchase the system for their primary home, which must be located in the U.S. and owned by the taxpayer. Second homes also are eligible for some credits. Rental properties do not qualify for this tax credit. Taxpayers must also file a Form 5695 with their tax return.
Solar electric property costs
- System type: Solar panels, also known as photovoltaic systems (which capture light energy from the sun and convert it directly into electricity).
- System requirements: Must provide electricity for the home, rather than for swimming pools or hot tubs, and must meet applicable fire and electrical code requirements.
- Qualifying property types: Primary home or second home.
- Maximum expense amount that can be claimed: No upper limit.