If you’re reading this, hopefully your taxes are filed. If not, you can come back after you hit send on the return.
The Residential Energy Efficient Property Credit expires at the end of 2016, giving you just over a year to take advantage of making your house a bit more eco-friendly. The tax credit helps homeowners pay for qualified residential alternative energy equipment. So while there’s a bit of heavy lifting involved – these are a bit trickier than just changing your air filter. Don’t fret – the payoff will be worth it in the end, both from an energy savings standpoint and in the form of a hefty check on your next tax return.
- Solar-powered water heaters. At least half of the home’s water-heating capacity must be as a result of solar and also must be used inside the house. That hot tub you want to install in the front yard unfortunately doesn’t qualify, but the average energy savings argue it’s worth the investment.
- Solar electricity equipment. Just like the water heaters, the electricity has to be used inside the house. In most states, this results in more than $100/month energy savings, translating to more than $20,000 in savings over 20 years.
- Wind turbines that generate up to 100 kilowatts of electricity (i.e. the ones you can fit in your yard). There are some useful state-specific tools available that help calculate energy savings and if wind energy is right for you.
- Geothermal heat pumps. The heat pump must meet Energy Star criteria, and while installation costs can run as high as $25,000, energy savings generally justify the cost after 10 years.
- Fuel cells. Perhaps the least utilized – and most expensive – of these retrofits, fuel cells combine oxygen with hydrogen extracted from natural gas or propane to produce electricity. The fuel cells tie directly into a home’s electrical panel to supply electricity, while the excess can often times be sold back to your utility.
So what will all of these energy alterations do for you from a rebate standpoint? (Apologies in advance for the math.) The Residential Energy Efficient Property Credit is equal to 30% of the cost of these retrofits, including installation. There is no maximum credit on the rebate amount for solar, wind and geothermal equipment, but the maximum tax credit for fuel cells is $500 for each half-kilowatt of power capacity, or $1,000 for each kilowatt.
In laymen’s terms, these energy-efficient changes seem daunting with up-front sticker prices, but pay off in spades down the road. In addition, you’re getting a nice financial boost from the IRS if these retrofits are completed by December 2016.
So if you got a nice tax return this year, consider putting some of the money toward a larger-scale retrofit. You’ll reduce energy consumption, be the talk of your neighborhood, and save a lot more money on the backend.