The shift toward solar and other renewable energy sources has provided opportunities for households to use renewable energy tax credits when filing taxes.
The government instituted the tax credit program to give solar power and other renewable energy users a way to recoup part of their green investment. Through this initiative, homeowners are not only recovering costs but also reducing their carbon footprint and doing their share for the environment.
With the tax season now upon us, it is important to know that one can apply for renewable energy credit when filing for taxes. The range of systems that the program applies to include solar energy or photovoltaics, and solar heating systems. For a system to qualify, the U.S. Environmental Protection Agency’s Energy Star program says that a solar heating unit should be certified by the Solar Rating and Certification Corporation or another entity endorsed by the state government where the property is located.
For solar power, the system should meet applicable fire and electrical code requirements and standards. The qualified expenditures for solar systems include labor costs, installation, and wiring connection of a solar energy unit or any applicable renewable set-up to the dwelling.
Under the program, taxpayers are allowed to deduct up to 30 percent of qualified costs for a green energy system installed in an existing or newly constructed home. There are several requirements for applicants to fully qualify for credit. Primarily, the dwelling must be located in the U.S., and must be owned and primarily used as a residence by the taxpayer.
Generally, green energy tax credits cannot be claimed for rental properties. However, homeowners can claim a certain credit percent if they currently live in the property but rent it out for a certain portion of the year. The credits would have to be calculated against the amount of time they stay in the property. For instance, if they stay in the home for half a year, only 50 percent of the applicable credit may be claimed by the homeowner.
Those who are planning to file their tax claims should use an IRS Form 5695. If a taxpayer has more credit than income tax due, the credit would be carried over in the succeeding filing year, according to TurboTax. The current 30 percent cap on solar tax credits will remain in place up until 2019. However, by 2020, owners of new solar systems can only deduct 26 percent. By 2021, this will be reduced by 22 percent, as posted in energy.gov. This applies to both commercial and residential systems.
The tax credit program was established by the Energy Policy Act of 2005. At that time, the tax credit was only applied to newly installed solar power and fuel cells. This was eventually expanded to include other renewables in 2008. Small wind energy, fuel cells, and geothermal heat pumps were included in the program.