By Jori Fahrenfeld
Did you know you may qualify for the Residential Clean Energy Credit from the IRS if you invest in clean energy for your home that includes solar, geothermal, wind, fuel cells or battery technology?
Here are the details: the Residential Clean Energy credit is equal to 30% of the cost of new, qualifying clean energy equipment installed anytime from 2022 through 2032. There is a varying credit percentage rate which phases down to 26% for installation in 2033 and 22% in 2034. The credit amount you receive can’t exceed the amount you owe in tax. You can carry forward any excess unused credit and apply it to reduce the tax you owe in future years and does not include loan interest paid or loan origination fees.
There is no annual or lifetime dollar limit for the credit, except for credit limits for fuel cell property. Credit can be claimed every year eligible property is installed until the credit begins to phase out in 2033.
Fuel cell property credit is limited to $500 for each half kilowatt of capacity. If there is more than one person living in the home, there is a combined credit limit for all the home’s residents not to exceed $1,667 for each half kilowatt of fuel cell capacity.
If you own or rent your main home [where you live most of the time], you may claim the residential clean energy credit for improvements. You also may be able to claim a credit for certain improvements made to a second home located in the US where you live part-time and don’t rent to others. However, you cannot claim a credit for fuel cell property for this second home – or if the property is not located in the US. Visit the website for additional information on qualifying residences.
You also cannot claim a credit if the property is solely used for business purposes. If you use your home partly for business, there is a maximum available credit for clean energy expenses. For business use up to 20%, you can obtain the full credit. For business use more than 20%, the credit will be based on the share of expenses allocable to nonbusiness use. Visit the website for additional information on who can claim the credit.
The qualified expenses include the cost of new clean energy property including: solar electric panels, solar water heaters, geothermal heat pumps, fuel cells, wind turbines and battery storage technology (starting last year (2023)). Used/previously owned clean energy property is not eligible. Also ineligible are traditional building components primarily serving a roofing/structural function generally do not qualify. Qualified expenses may include onsite preparation labor costs, assembly/installation of the new clean energy property and piping/wiring to connect it to the home. the rebate is based on the cost of the property, if it comes from someone connected to the sale(manufacturer, installer, distributor or seller), it isn’t given as payment for services you provide.
State energy efficiency incentives are generally not subtracted from qualified costs unless they qualify as a rebate of purchase price adjustment until federal income tax law. Many states consider energy efficiency incentives as rebates even though they don’t qualify under that definition. These incentives could be included in your gross income for federal income tax purposes. Visit the website for additional information about how subsidies affect home energy credits.
See the program details on the IRS website: https://www.irs.gov/credits-deductions/residential-clean-energy-credit