Putting a little money into your home to save on energy bills can result in a tax credit being available to you. The more efficient your home is, the less it will cost to heat and cool it. Your home will also maintain a more even temperature, and the HVAC system in your home will run less. It is important to know how these tax credits work and who is eligible for them.
Energy Efficiency Credit
The types of projects that promote energy efficiency in a residential home may be costly upfront. What many homeowners are unaware of is that you can get some of this money back on your yearly tax return. If you replace your roof, install new insulation or have windows replaced they all qualify for the credit. In some cases, replacing old, worn-out doors may also qualify.
Flooring typically does not qualify, however, you may be able to include heated floors as it will reduce your overall heating cost.
Keep all of your receipts as you will need them. A portion of the credit that you can receive is an equivalent of approximately 10-percent of the cost you spent to add these items to your home.
Credit Claiming Restrictions
There are restrictions regarding the maximum amount of money that you can receive for making these improvements. The total lifetime amount that you can claim is $500. You cannot claim more than $200 toward window replacements.
Energy Efficient Property Credit
A different type of energy efficiency tax credit is also available. This credit is specifically for green-homes, or those listed as an entirely energy efficient property. Homes that have solar power, heat, wind turbines and water utilities qualify for this credit. The credit is limited to the end of the 2016 tax year only and does not have a limit on dollar amount as with the other credit.
This credit is valued at 30-percent of the cost of the equipment and installation on or in your home.
Requirements for Filing for the Tax Credits
You must provide documentation that the items installed in your home qualify for the tax credit. This paperwork must be included when you file your tax return. The home must be on U.S. soil but does not have to be your primary residence. When applying for the energy efficient home improvement credit, the installation has to take place before December 31, 2016 to qualify.
One of the benefits of this tax credit is more than the amount that you owe, you have the option of receiving a tax refund or rolling the funds over to next year’s tax return to reduce the potential amount owed. This is an ideal option for those that are self-employed or are business owners as reducing tax liabilities for the following year relieves some financial stress.
Use the available form, IRS Form 5695, for residential energy credits. This form, and associated worksheets will help you configure the credit/s you are eligible for and how much you can actually claim. It is important to separate residential and business energy expenses if a home-business office is part of your utility bill. An accountant can help you separate these costs.