By Trevor McDonald
As a condo owner you’ve probably heard about energy tax credits. They’re a huge selling point when you’re shopping for appliances, new windows or doors, or even thinking about finally installing solar panels or another alternative energy feature in your home. But what are they, and how do they work? The most important thing to know is that you have to claim any credits for the same tax year in which you bought and/or installed the item—and what qualifies can change every year.
The IRS regularly changes, adds and removes credits as well as rules for deductions and write-offs on an annual basis. That’s one reason why it’s so important to have a CPA or other tax professional in your corner and not “just” rely on DIY tax filing. A professional is knowledgeable about the latest tax credits and can also help inform your future purchasing decisions.
Many times, energy tax credits rules stay pretty similar for consecutive years, but you’ll still want to check with your tax expert before making any energy efficient purchases in 2017 (that goes for vehicles, too!). However, if you know or think you made qualifying purchases in 2016, here’s an overview of the regulations for 2016 taxes that may help you lower your tax bill as you file your return for last year. Remember: These are current only for the 2016 tax year:
Residential Energy Efficiency Property Credit:
In 2016, homeowners who made energy-friendly improvements to their homes can enjoy an increased tax credit. Now, you can get a credit rate of 30 percent of the total costs. This can include installation costs, too. However, this only applies to improvements that went into service in 2009 or 2010 (yes, sometimes Uncle Sam likes to take a retroactive approach.) If this is you, start digging for proof of improvements. (This is also why you keep receipts for all your condo improvements in your permanent file!)
Solar, wind and geothermal all qualify for the Residential Energy Efficiency Property Credit:
Sometimes the verbiage “green energy” can be confusing. However, if you’re claiming this credit, all three types of green energy applies, and you can claim it for both a principal residence and second home. Fuel-cell equipment can also qualify, but only for your principal residence. There’s no maximum credit for solar, wind or geothermal products, but there is a max for fuel cells of $1,000 per kilowatt.
ENERGY STAR Federal Tax Credits:
Every year, the government’s ENERGY STAR department features a variety of appliances that may qualify you for a tax credit. Purchases must have been made in 2016 but also include retroactive purchases from 2015. There are 70 categories to consider, and you can get a credit of 10 percent of the cost for a maximum of $500. Check the ENERGY STAR website for a full list of all qualifying products.
Nonbusiness Energy Property Tax Credit:
The Department of Energy has technical efficiency regulations in place for these purchases. However, the manufacturer should be able to say whether an item qualifies. The IRS considers two upgrade types including “qualified energy efficiency improvements” and “residential energy property costs.” The first includes home insulation, some roofing materials, exterior doors, and exterior windows/skylights. The latter includes items like electric heat pumps/water heaters, central HVAC, natural gas/propane/oil water heaters, stoves using biomass fuel, natural gas/propane/oil furnaces or boilers, and advanced circulating fans.
Not sure if your 2016 purchases or upgrades qualify for a tax credit? Here’s what to do:
- Gather all receipts and manuals (if applicable). It’s usually much faster and less headache-inducing to let a qualified tax professional figure out if you have potential tax credits coming your way. If it is too late in the tax season to find someone who can still fit you in before the April 18, 2017 filing deadline, it might be worthwhile to file for an extension so you don’t miss out on these valuable tax credits.
- Start planning ahead for the 2017 year. Before making any potential green home purchases in 2017, gauge whether 1) an energy efficient purchase is wise for you and 2) make sure if it’s green, it qualifies for a credit next year.
Energy tax credits are a great way to ensure that you keep more of your hard-earned money—all while helping the environment and your property value.
Trevor McDonald is a writer and entrepreneur whose passions include surfing, cars, and motorcycles. He writes for Power Target LLC and does other freelance work in his spare time.