Been thinking about installing a solar energy system, but haven’t gotten around to it? The time to act might be now, while federal tax incentives remain.
Solar energy systems are the only federal renewable-energy tax credits left after several incentives expired in 2016. If you installed renewable energy systems, such as residential wind turbines or geothermal heat pumps, or added energy-efficiency improvements such as windows, heating or air conditioning, or a new roof to your home last year, you can still claim those on your federal taxes. But there has been no word yet on whether these and other energy tax credits will be renewed for 2017.
Don’t forget, however, despite the apparent loss of federal incentives, many states continue to offer subsidies for homeowners.
Let the Sun Shine In
The federal tax credit for solar energy systems, which remains intact, includes solar electricity panels and solar water-heating systems. People who install solar panels at their main homes and/or second homes may apply for a tax credit of 30% of qualified costs, with no upper limit on the cost, once installation is done.
These installments can take some time, so don’t dawdle. The 30% credit is for systems placed in service by December 31, 2019, with the credit dropping to 26% if a system is installed after that date, and then to 22% if it is installed after December 31, 2020, but before January 1, 2022.
Homeowners can get similar tax credits for solar water heaters, but to get the credit the system needs to be certified, and at least half the energy used to heat water must be from solar. One caveat to the program: it doesn’t apply to solar water-heating systems for swimming pools or hot tubs.
Form 5695 Is Your Friend
Use IRS form 5695 to claim the federal tax credit for renewable energy improvements. If you installed energy-efficient items like building envelope improvements such as a new roof or replacement windows, or installed a heating or cooling system, the residential energy-efficiency tax credit applies. This credit expired in 2014, but Congress renewed it through 2016. First-time filers receive 10% of the cost, up to $200 for windows and skylights, and up to $500 for doors.
If you completely installed fuel cells, geothermal heat pumps, or residential wind turbines in 2016, you’re eligible for the federal residential renewable energy tax credit of 30% for the cost of adding these technologies.
Whether the federal tax credits for either energy efficiency or non-solar renewable energy systems will be renewed is unknown. Garvin Jabusch, chief investment officer at Green Alpha Advisors in Boulder, Colorado, who follows the renewable-energy space, said he doesn’t think the Trump administration will push for new credits nor extend existing ones, but he doesn’t expect credits will be cut short, either. It may not matter anyway, he said.
“Renewables have entered a period of becoming cost competitive and more-than-cost competitive with fossil-fuels-based electricity generation. Meaning, if cost declines continue, renewables, which are economically competitive already, will not need subsidies or tax-favorable policy extensions to remain America's fastest-growing energy source. So, long term, we still see growth and positive investment outcomes in the space,” he said.
Pain Free? No. Easier? Yep
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