Everything You Need To Know About Energy Tax Credits!May 15, 2023
Do you qualify for energy tax credits? How can you claim energy tax credits? Here is what you need to know about energy tax credits.
The IRS encourages taxpayers to make energy efficient upgrades in homes. This will not only help them save on energy bill, but also help reduce tax liability. The IRS offers energy tax credits to taxpayers who made significant energy efficient improvements on their homes for the tax year. You can claim the tax credits come tax season, and here is what you need to know about the tax credit, including how you can claim the credit.
What is Energy Tax Credit and How Does It Work?
Energy tax credit is a unique tax credit designed for people who have or want to make energy efficient improvement in their homes. In other words, the credit is to encourage taxpayers to consider energy efficient upgrades for solar energy, wind energy and even geothermal energy. And this will not only help you reduce your energy bills, but also have your tax liabilities reduced by the tax credit.
Energy Tax Credits You Can Claim the Coming Tax Season
Solar energy tax credit
If the you bought and installed solar panels in your home to generate solar energy from the sun, you may be eligible for federal solar tax credit. You just need to have the right documents such as receipts to show the costs and other supporting documents just in case of an audit. The total cost, including cost of installation, you can claim a percent of it come tax time. For 2020 tax year, you can claim 26% of the total cost of the solar panel installation for the 2021 tax season. For instance, if the total cost for solar panel installation in your home was $10,000, you can claim a tax credit of $2,600.
How Long is Solar Tax Credit Available for to Taxpayers?
This solar tax credit has been used for several years and it’s gradually phasing out. In 2019, qualified residential customers enjoyed a 30% tax credit rate, in 2020 the tax rate is 26%, and 22% in 2021. By 2023 tax year, this tax credit will no longer be available. Therefore, you should take advantage of it, before it phases out.
Other Energy Tax Credits You Need to Think About
There are other residential energy tax credits you can qualify for. If you install windows and doors that meet Energy Star Standards, you can claim $200 and $500 tax credits, respectively. Also, there other installations you should look at such as wind turbines, geothermal heat pumps and fuel cells. They can earn you energy tax credits.
How to Claim Energy Tax Credits?
Energy tax credits are non-refundable, and will reduce your tax liability significantly. You can claim these energy tax credits you qualify for using Form 5695. You should do it the smart way through online tax filing. When you use online tax filing software like H&R Block or TurboTax, you can file your taxes online, and claim the energy tax credits you qualify for. It’s that easy and fast.