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How a Home Renovation Could Help You Save on Your Tax Bill!
For many people, the idea of renovating their home and saving on their tax bill doesn’t seem possible, but it is. By making your home energy efficient, not only are you saving on your utility bills, but also reducing your tax burden. How can this be, you ask? Four words: residential energy tax credits.
So what are these magical things… residential energy tax credits? In a nutshell, they are financial incentives you can take advantage of to make your energy efficient upgrades more affordable. There are two types, as listed below:
1. Non-business Energy Property Credit
The Non-business Energy Property Credit allows homeowners to claim 10% of the cost of eligible property, not including cost of labor or installation. Eligible property includes:
- Qualified energy-efficiency improvements:
- Insulation that reduces a home’s heat loss or gain.
- Exterior windows, skylights, or doors.
- Storm windows and storm doors.
- Metal and asphalt roofs with pigmented coatings or cooling granules designed to reduce heat loss or gain.
- Residential energy property costs can include expenses for onsite labor costs such as preparation, assembly and original installation, and include:
- Electric heat pumps.
- Central air conditioners.
- Natural gas, propane, or hot water boilers or oil furnaces.
- Advanced main air-circulating fan used in a natural gas, propane, or oil furnace.
- Biomass fuel stoves.
This credit has a lifetime limit of $500 for each year after 2005, which can be categorized as follows:
- Windows: $200
- Advanced main air circulating fan: $50
- Qualified natural gas, propane for oil furnace, or hot water boiler: $150
- Any item of energy efficient building property, i.e., water heaters and heating and air conditioning systems: $300
Should the total of nonbusiness energy property credits you have taken in previous years (after 2005) exceed more than $500, you cannot apply for this credit for 2014.
2. Residential Energy Efficient Property Credit
Apply a residential energy tax credit towards 30% of the cost of the following alternative energy equipment installed in or on their homes:
- Solar electric property
- Solar water heating property
- Fuel cell property
- Small wind energy property
- Geothermal heat pump property
The Residential Energy Efficient Property Credit is valid until 2016 and places no dollar limit for most types of property. If your credit exceeds the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return, with the exception of fuel cell property. Fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property.
To learn more about how you can take advantage of residential energy tax credits to reduce your tax burden while improving your home’s energy efficiency, consult with a certified RESNET Home Energy Professional. You can also visit irs.gov for more information on residential energy tax credits.
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