These three federal tax credits may help defray part of the cost to make your home more energy efficient or to purchase a new plug-in vehicle.
Making qualified energy-saving improvements to your home or purchasing a new plug-in vehicle may entitle you to a federal tax credit for part of the cost.
As a reminder, tax credits reduce your tax liability dollar for dollar. Tax savings like this can help significantly lower the cost of going green.
To qualify for credit, the vehicle or equipment must meet certain energy-related requirements. You can generally rely on the manufacture’s certification that the vehicle or equipment meets requirements and qualifies for the credit.
There are other requirements that you must meet. This article touches on some of them, but not all of them. It’s a good idea to explore all of them before you make a purchase decision.
This article also reflects the tax rules in place as of May 1, 2021. It is possible that they may be extended or change in the future.
If you are considering adding solar panels or a different type of alternative energy equipment to your home, you may want to act while the Residential Energy Efficient Property Credit is available. The credit is generally equal to 26% of the cost of the qualifying equipment and the labor to install it for systems placed in service in 2020, 2021, or 2022. The credit drops to 22% for systems placed in service in 2023 and is not scheduled to be available for systems placed in service after 2023. There is no dollar limit on the credit with the exception of fuel cell property, which is limited to $500 for each half kilowatt of capacity.
The credit can generally be claimed for adding qualified:
- solar electric equipment
- solar water heaters
- geothermal heat pumps
- wind turbines
- fuel cell property
- biomass fuel property (beginning 2021)
The equipment must be installed in or at a home in the U.S. that you use as a residence. It can be your existing home or a new home that you are constructing. For most types of equipment, it can be your main home or your second home. However, the credit for fuel cell property can only be claimed for equipment installed in your main home.
The Nonbusiness Energy Property Tax Credit may help you defray up to $500 of the cost of energy-efficient furnaces, water heaters, central air conditioners, insulation, and certain other items that you install in your home in 2021. There is a $500 maximum limit on this credit, and it is a lifetime limit. So if you claimed this credit in previous years for an amount totaling $500 or more, you are generally no longer eligible for this credit. There is also a $200 lifetime limit on windows. This credit can only be claimed for your main home in the United States.
Purchasing a new all-electric or plug-in hybrid vehicle may reduce your federal taxes by as much as $7,500, thanks to the Plug-In Electric Drive Moto Vehicle Credit. The exact amount of the credit depends on the capacity of the battery used to power it. Many makes and models are eligible for the credit. A full list of the latest credit amounts and vehicles can be found at www.fueleconomy.gov or www.irs.gov.
Please consult with us if you are looking to pursue tax credit for going green. With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to provide clarity and calm amidst the chaos. Where there is uncertainty, we look for facts. We call our approach evidence-based investing. Call us today at 802-878-2731 to schedule a strategy session and begin building your road map to financial success.
Article published in July 2021 edition of Eye on Money. If you would like to be added to our mail list please email [email protected].
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