Getting Paid to Reduce Your Carbon Footprint – Residential Energy Credits.

Getting Paid to Reduce Your Carbon Footprint – Residential Energy Credits.

REINFORCING THE BASICS!

Nuclear, bad. Fossil fuels, bad. Big carbon footprints, bad.  Our government encourages renewable or sustainable energy as a means for energy security, job creation, climate control, and planet preservation.  Encouragement doesn’t go very far without incentives. Incentives = tax credits.  One of the first energy incentives dates back to 1789 when George Washington signed off on a tariff on British coal.

What is renewable energy?  It is energy that is collected from naturally replenishing resources, such as sunlight, wind, rain, tides, waves, and geothermal heat.  Think of it, wind has been used to generate power since the beginning of time!  Hydroelectric power, 71% of the Earth’s surface is water!  And in 2019 less than 12% of US energy production is from these renewable sources.

Remember credits reduce tax liability $ for $.  Basically, government pays your taxes for you.  Residential Energy Credits are nonrefundable meaning if you still have credit left after wiping out your 2019 tax liability, that credit will pay down your 2020 tax bill, and so on through at least the 2021 tax year.

The ultimate goal would be to replace non-renewable resources: nuclear energy and fossil fuels -“The Big Three”; coal, petroleum, and natural gas.  And yes, cows and planes could possibly go by the wayside.  Cows because renewable energy sources require a heck of a lot of land and planes because they don’t fly on wind alone.  Oh, and farting cows are really bad for the environment.

HOW LONG HAVE THESE CREDITS BEEN AROUND?

These particular credits were first established in the Energy Policy Act of 2005 as government’s way of boosting renewable energy and were initially capped at $2,000.  In 2009, The American Recovery and Reinvestment Act uncapped it, meaning with the exception of qualified fuel cell property there is no limit on what you can spend on installation and get a credit for.  There have been several extensions, the most recent in December 2015, this time extended through 2021.

HOW DOES IT WORK?

Tax Year % of Installed Cost
2019 30
2020 26
2021 22
2022 0

Your home located in the United States.  Your home is what you owned and where you lived most of the time.  Houses, houseboats, mobile homes, manufactured homes, coops, and condos.  With the exception of qualified fuel cell property, the home does NOT have to be your primary residence/main home.  If you have a vacation home or rental property, you can prorate the credit for the amount of time you lived there in the year of installation.

You claim the credit for costs of Qualified Energy Efficient Property in the year the energy efficient system is completely up and running.  As you can see from above – 2019 is the best year to get any energy improvement done.

What is Qualified Energy Efficient Property?  Qualified Energy Efficient Property can be solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, and fuel cell property.

Qualified solar electric (photovoltaic) property uses solar energy to generate electricity for use in your home.  Panels on the roof count because structural components of a structure are not disqualified just because they are a piece of a whole.  You must own the property. Leases and power purchase agreements (PPA) are not eligible for a tax credit. A power purchase agreement is basically paying the solar panel provider a discounted rate for what you use and they sell what you don’t use.  Leases and PPAs are typically 20- 25 years in duration.

Qualified solar water heating property heats water for use with at least half of the energy used by coming from the sun. Again, panels and other such installed property are not disqualified just because they are a piece of a whole. To qualify for the credit, the property must be certified for performance by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the state in which the property is installed.

Qualified small wind energy property uses a wind turbine to generate electricity.

Qualified geothermal heat pump property is any equipment that uses the ground or ground water as a thermal energy source to either heat your home or as a thermal energy sink to cool your home. The completely installed geothermal heat pump property must meet the requirements of the Energy Star program that are in effect at the time of purchase.

Qualified fuel cell property is an integrated system comprised of a fuel cell stack assembly and associated balance of plant components that converts a fuel into electricity by changing chemicals. Blahblahblah. To qualify for the credit, the fuel cell property must have a nameplate capacity of at least one-half kilowatt of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%. Blahblahblah. The home has to be your main home. The maximum tax credit for fuel cells is $500 for each half-kilowatt of power. For example, a fuel cell with a 5 kW capacity would qualify for 5 x 2 x $500 = $5000 tax credit.

What are costs? Costs are what we would normally assume they are: the equipment itself; building supplies like wiring and screws, nuts, and bolts; permits; debris removal; professional fees like architect, engineer, and electrician; tools; shipping; and, labor. Your own labor doesn’t count. Scan or shoebox these receipts!

WHAT OTHER THINGS SHOULD I KNOW ABOUT RESIDENTIAL ENERGY CREDITS?

 √  Costs to heat up the swimming pool and hot tub are not qualified costs.
 √  Energy storage for residential is eligible for the credit, as long as the battery is charged by the onsite solar energy system.
 √  Applicable electrical and fire code requirements must be met.
 √  The system must be placed into service — up and running — after 01/01/2006 and on, or before, 12/31/2021.
 √  Some states offer perks and bonuses as well.

WRAPPING IT UP.

If you’re contemplating embracing renewable energy for your home and have any questions about the dollar aspect reach out to McAtee and Associates for answers and guidance.  CallCarolFirst!

info@accpas.com OR 727-327-1999.

Be sure to check back here next week for info on maximizing Education Credits and check us out on Facebook and Twitter for our (almost) daily fun and informative posts.

McAtee and Associates’ Disclaimer:

Our blog is intended for educational and awareness purposes.  The general information provided about taxes, accounting, and business-related topics is by no means intended to provide or constitute professional advice.  Reading our blog does not create a Client/CPA relationship between you and us.  The blog, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for professional advice or as a substitute for communicating with a competent, human professional.

Our blog posts are written using current information and current or proposed rules and regulations.  Information becomes old and outdated and rules and regulations are frequently changed, added, amended, and/or left to expire.  This is extremely true with most things tax and to a lesser and slower extent, most things accounting. We do not go back and update previously posted blogs.  Always check with your CPA or accountant regarding not only rules and regulations but available options and how it all applies to your fact pattern and you.

 

 

 

 

 

 

 

 

 

 

 

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