Energy Efficiency Tax Breaks Let You Go Green and Save Bucks

 

Energy Efficiency Tax Breaks Let You Go Green and Save Bucks

Going green isn’t only a way to save the planet. It can also help you accomplish a less lofty but still necessary goal: saving money.

Credit is due to Congress, technology and that economics classic, supply and demand.

Installing solar panels is among the adjustments that will save you the most, but there are other ways that being eco-friendly will cut your bills.

Incentives for home solar

Homeowners thinking about going solar have received a big incentive from Uncle Sam: a 30% federal tax credit on the cost of system installation. Factor that in, and a typical residential installation goes from costing about $18,500 to less than $13,000.

The federal tax credit was introduced in 2009 and was scheduled to end on Dec. 31, 2016. Congress has since voted to extend it through 2019. It will be trimmed to 26% in 2020 and 22% in 2021. After that, there will be a 10% credit available only to businesses. For now, existing homes and new construction can take advantage. Rentals don’t qualify.

The credit is quite simple: You can subtract the price you paid for the solar system from your federal income tax bill, minus any rebates from other sources. There’s no upper limit on cost of the system. If the credit exceeds your tax bill, you can carry the difference over to the next tax year.

There is one catch, and it’s a big one: Many consumers lease solar systems, rather than buying, so that they can cut their electric bills without paying for installations. But if you do this, the tax credit will go to the installation firm or the financial institution that loaned it the money.

But wait, there’s more to save

Through Dec. 31, 2016, there also is a 10% federal tax credit worth up to $500 for the installation of products that increase the energy efficiency of existing residences. It covers biomass stoves; air-source heat pumps; central air conditioning; gas, propane or oil hot water boilers, furnaces and fans; insulation; pigmented metal roofs; and windows, doors and skylights.

Every state also has programs to encourage energy and/or water savings. Hawaii, for example, offers homeowners an income tax credit of 35% of the cost of equipment and installation of solar energy systems with a maximum credit of $5,000. That’s on top of the 30% tax break you can get from the feds. You can also get a credit of 35% of the cost of buying and putting in a solar water heating system, giving you up to $2,250 off of your taxes.

Utilities and water agencies also often reward efficient users with rebates. For example, the Public Service Company of Oklahoma, which serves a half-million customers around Tulsa and in the southwestern and southeastern corners of the state, offers rebates ranging from $20 for putting a solar screen in a window to $600 plus $350 per ton for installing an energy-efficient ground source heat pump.

Many of these rebates depend on the item’s efficiency rating, as measured by the federal government’s Energy Star program.

The Database of State Incentives for Renewables & Efficiency (DSIRE) has a comprehensive list of incentives by state, as well as maps showing solar policies across the U.S. That site is a great place to start your search for savings.

Consultation with a tax professional is recommended.

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Posted in: NerdWallet, Personal Finance, Taxes
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