by Bill Bischoff (May 4, 2017) www.marketwatch.com
One of the residential energy tax credits expired at the end of 2016, but it had a lifetime limit of only $500. So it was basically a waste of space in our beloved Internal Revenue Code. Meanwhile, another much more lucrative credit for solar energy equipment is still available. Here’s what you need to know to cash in.
Solar energy credit basics
You can claim a federal income tax credit equal to 30% of your expenditures to buy and install qualifying energy-saving solar equipment for your home. Since this stuff is expensive, it can generate big credits. And there are no income limits. Even billionaires are eligible.
As the tax law currently reads, the 30% credit is available through 2019. But who knows what will happen if big tax changes are enacted? So it might be best to take advantage sooner rather than later. In 2020, the credit rate will drop to 26% and then to 22% in 2021. After that, the credit is scheduled to expire.
The credit can be used to reduce both your regular federal income tax bill and any alternative minimum tax (AMT) that you owe. If your credit is so large that you cannot use it all on one year’s return, you can carry the excess credit forward to future years.
All in all, this is one of the sweetest tax breaks around for individual taxpayers.
You can only claim the credit for expenditures on a “home,” which can include a house, condo, co-op apartment, houseboat, mobile home or a manufactured home that conforms to federal manufactured home construction and safety standards.
The credit equals 30% of expenditures (including costs for site preparation, assembly, installation, piping, and wiring) for the following gear.
- Qualified solar electricity generating equipment for your U.S. residence, including a vacation home. You must use the residence yourself. So the credit cannot be claimed for a property that is used exclusively as a rental.
- Qualified solar water heating equipment for your U.S. residence, including a vacation home. To be eligible for the credit, at least half of the energy used to heat water for the property must be generated by the solar water heating equipment. The equipment must be certified by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the state in which your residence is located. Keep the certification with your tax records. You cannot claim the credit for equipment used to heat a swimming pool or hot tub (that would be too good to be true). Finally, the credit cannot be claimed for a property that is used only as a rental.
Claiming the credit
Keep proof of how much you spend, including any extra amounts for site preparation, assembly, and installation. Also keep a record of when the installation is completed, because you can only claim the credit in the year when that happens. Claim the credit by including Form 5695 (Residential Energy Credits) with your Form 1040.
Additional goodies may be available
You might also be eligible for state and local tax benefits, subsidized state and local financing deals, and utility company rebates. Hopefully the energy savings, together with the federal tax breaks and other available incentives, will justify the cost.
Plus: Expanded credit opportunities for 2016 installations
For 2017 and beyond, the 30% credit is limited to expenditures for qualified solar electricity generating equipment and solar water heating equipment. But for 2016, you could also claim a 30% credit for the following expenditures.
- Wind energy equipment for your U.S. residence (including a vacation home).
- Geothermal heat pump equipment for your U.S. residence (including a vacation home). The equipment must have met the requirements of the Energy Star program that was in effect at the time of purchase.
- Fuel cell electricity generating equipment for your U.S. principal residence. Vacation homes don’t count here. The maximum credit is limited to $500 for each half kilowatt of fuel cell capacity.
You can claim a credit on your 2016 return if the installation of the qualified equipment was completed last year. If you already filed your return without claiming your rightful credit, file an amended return with Form 5695 to cash in.
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