Taxpayers who upgrade their homes to make use of renewable energy may be eligible for a tax credit to offset some of the costs. Through the 2020 tax year, the federal government offers the Nonbusiness Energy Property Credit. The renewable energy tax credits are good through 2019 and then are reduced each year through the end of 2021. Claim the credits by filing Form 5695 with your tax return.
The federal tax filing deadline for individuals has been extended to May 17, 2021. Quarterly estimated tax payments are still due on April 15, 2021. For additional questions and the latest information on the tax deadline change, visit our “IRS Announced Federal Tax Filing and Payment Deadline Extension” blog post.
For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.
Residential Renewable Energy Tax Credit
Equipment that qualifies for the Residential Renewable Energy Tax Credit includes solar, wind, geothermal and fuel-cell technology:
- Solar panels, or photovoltaics, for generating electricity. The electricity must be used in the home.
- Solar-powered water heaters. The water heated by the system must be used inside the home, and at least half of the home's water-heating capacity must be solar. (Solar heaters for swimming pools and hot tubs do not qualify.)
- Wind turbines that generate up to 100 kilowatts of electricity for residential use.
- Geothermal heat pumps that meet federal Energy Star guidelines.
- Fuel cells that rely on a renewable resource (usually hydrogen) to generate power for a home. The equipment must generate at least 0.5 kilowatts of power.
Renewable energy tax credit details
According to the U.S. Department of Energy, you can claim the Residential Energy Efficiency Property Credit for solar, wind, and geothermal equipment in both your principal residence and a second home. But fuel-cell equipment qualifies only if installed in your principal residence.
- The credit is equal to 30% of the cost, including installation, through 2019 and then it steps down to 26% through 2022. The credit is 22% for 2023 after which it expires.
- There is no upper limit on the amount of the credit for solar, wind and geothermal equipment.
- The maximum tax credit for fuel cells is $500 for each half-kilowatt of power capacity, or $1,000 for each kilowatt.
- For example, a fuel cell with a 5 kW capacity would qualify for 5 x $1,000 = $5,000 tax credit.
Nonbusiness Energy Property Tax Credit (Extended through December 31, 2021)
Equipment and materials can qualify for the Nonbusiness Energy Property Credit only if they meet the standards set by the Department of Energy. The manufacturer can tell you whether a particular item meets those standards.
For this credit, the IRS distinguishes between two kinds of upgrades.
- Home insulation
- Exterior doors
- Exterior windows and skylights
- Certain roofing materials
- Electric heat pumps
- Electric heat pump water heaters
- Central air conditioning systems
- Natural gas, propane or oil water heaters
- Stoves that use biomass fuel
- Natural gas, propane or oil furnaces
- Natural gas, propane or oil hot water boilers
- Advanced circulating fans for natural gas, propane or oil furnaces
Details of the Nonbusiness Energy Property Credit (Extended through December 31, 2021)
You can claim a tax credit for 10% of the cost of qualified energy efficiency improvements and 100% of residential energy property costs. This credit is worth a maximum of $500 for all years combined, from 2006 to its expiration. Of that combined $500 limit,
- A maximum of $200 can be for windows.
- The maximum tax credit for a furnace circulating fan is $50.
- The maximum credit for a furnace or boiler is $150.
- The maximum credit for any other single residential energy property cost is $300.