Many people are choosing a greener lifestyle because it’s good for the planet, but did you know it can be good for your taxes too? Here’s a look at four things you can do to help ease your tax burden while at the same time becoming less taxing on the environment.
Going green can help you reduce your overall tax bill as long as you know what’s allowed and what you need to do to claim it. There are ways to take advantage of green incentives, such as buying alternative vehicles, using Energy Star products and installing certain alternative energy equipment. But, as you’ll see below, some of these incentives won’t last forever.
1. Take advantage of renewable energy incentives that are here to stay — for a little while at least
One green federal tax incentive that'll be around for a bit longer is the tax credit for renewable home energy systems, and it’s a biggie.
The credit covered 30% of the cost of solar electric and solar water heating systems (but not those for swimming pools or hot tubs), small wind-energy properties and geothermal heat pumps placed in service after December 31, 2016 and before January 1, 2020.
- There’s no income limit to the credit.
- Unlike some tax incentives, it applies to a second home, not just a primary residence.
- After 2019, the credit is reduced until it expires at the end of 2023.
A tax credit for 26% of the cost of a residential fuel cell — up to $500 per 0.5 kilowatt of power capacity — is also available through Dec. 31, 2020 with similar reductions through the end of 2023. New construction and existing homes qualify for the credit.
Installing a geothermal heat pump, which transfers heat to your home from the ground via a water-and-refrigerant recirculating system, can let you take advantage of the Residential Energy Credit.
- For 2019, you can claim 30% of the amount you spend buying and installing a geothermal heat pump system on your taxes.
- Through 2022, that drops to 26%.
- In 2023, it goes down to 22% before disappearing entirely.
2. Fuel your savings
Tax credits for most hybrid cars have expired, but there are still ways to get tax credits for your alternative vehicles.
Certain fuel cell motor vehicles could qualify for the Alternative Motor Vehicle Tax Credit, but many of the credits have been reduced or phased out. The amount of the credit differs according to the make, model and year the car was made, and there are other requirements you need to be aware of. You can only claim this credit if:
- The car was purchased before 2017
- You are the vehicle’s original owner/lessor
- You drive the car primarily in the U.S.
If you bought the vehicle to resell it, you won’t qualify for the credit. To find out if your vehicle qualifies, visit the Department of Energy’s fuel economy website and search for your vehicle by make, model and year.
If you bought a plug-in electric vehicle, you could be eligible for the Qualified Plug-In Electric Drive Motor Vehicle Credit, which applies to new electric vehicles bought after Dec. 31, 2009. This credit will begin to phase out when at least 200,000 qualifying vehicles manufactured by each automaker have been sold in the United States. In order to qualify the vehicle must:
- Have been purchased new
- Have been made by an eligible manufacturer under the Clean Air Act
- Have at least four wheels
- Be able to drive on public streets and highways
- Have a weight rating of less than 14,000 pounds
- Have an electric motor that uses a rechargeable battery to generate at least 5 kilowatt hours of capacity
Tax credits for both of these range from $2,500 to $7,500 based on the vehicle’s battery capacity and the car's overall size. Visit the IRS website for an index of qualifying manufacturers.
3. Make donations for dollars
Many taxpayers are familiar with the charitable contribution tax benefit of donating old clothes to the local thrift store. But, did you know that the latest thing in charitable contributions is electronics recycling?
When you donate electronics — such as cellphones, game consoles and computers — to a qualifying nonprofit or company, you can write off the donation for the amount of their fair market value.
- If the donation is valued at less than $500, there are no forms to fill out.
- Once your total charitable contribution deduction of goods exceeds $500, you must submit Form 8283, which lists the names of the organizations and types of donations you made, with your tax return.
- Remember to get a receipt for your files.
- For more information, check out the Internal Revenue Service’s Guide to Charitable Contributions — Publication 526.
TurboTax tax tool ItsDeductible helps you assign a dollar amount to your donation. Just tell us what you donated, and we'll enter the appropriate value based on IRS guidelines.
4. Become an Energy Star
The Energy Star program of the U.S. Environmental Protection Agency and the U.S. Department of Energy helps taxpayers save money and the environment by going green. Although not all Energy Star-qualified products are eligible for incentives, and some tax breaks for energy efficiency expired in 2011, credits are still available through 2023 for some energy programs — like those mentioned above.
Even products that no longer provide tax credits can save you money by instantly lowering energy bills. For example, a programmable thermostat with the Energy Star label isn't covered by tax credits, but it could reduce your heating and cooling bill by 10%.
Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we've got you covered. Feel confident doing your own taxes.