Have you ever wondered how you can save money and help the planet at the same time? If so, you may have an interest in learning about energy tax credits. Energy tax credits are incentives that the government offers to individuals and businesses who use alternative or renewable energy sources, such as solar, wind, geothermal, or biomass.
Use these credits to reduce the amount of taxes you owe or increase your refund. Not only that, these credits make it easier and more affordable to switch to clean energy. Follow the guide in this article to have a clear knowledge of energy tax credits and how they can help you save money and help the planet.
- What Are Energy Tax Credits?
- What Are the Available Types of Energy Tax Credits?
- What Are the Benefits of Energy Tax Credits?
- Who Qualifies for Energy Tax Credits?
- How to Claim Energy Tax Credits
1. What Are Energy Tax Credits?
Imagine that you want to buy a new car, but you don’t have enough money. You go to the bank and ask for a loan. The bank agrees to lend you some money, but it also charges you interest. That means you have to pay back more than what you borrow. Now, imagine that the government wants to encourage you to buy a car that runs on clean energy, such as electricity, solar, or hydrogen.
The government offers you a deal: if you buy a clean energy car, you get some money back. That means you have to pay back less than what you borrow. This is what energy tax credits are: they are money that the government gives you back if you use clean or renewable energy sources, such as solar panels, wind turbines, geothermal pumps, or biomass stoves. By doing this, the government helps you save money and also helps the environment by reducing greenhouse gas emissions. Isn’t that a great deal?
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2. What Are the Available Types of Energy Tax Credits?
Know that there are two main types of energy tax credits that you need to be aware of: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit. These credits can help you save money and reduce your environmental impact by using alternative or renewable energy sources in your home. Let me explain each one briefly.
Get 30% back when you choose Energy Efficient Home Improvement Credit on the cost of eligible home improvements, such as new windows, doors, insulation, air conditioners, water heaters, furnaces, boilers, heat pumps, biomass stoves, and boilers. The maximum amount of the credit is $1,200 per year (or $2,000 for certain heat pumps, biomass stoves, and boilers), and there is no lifetime limit.
This means you can claim this credit every year until 2032.
The Residential Clean Energy Credit gives you 30% of the cost of eligible clean energy systems, such as solar, wind, geothermal, fuel cells, and battery storage. There is no annual or lifetime limit for this credit, and you can claim it until 2034.
3. What Are the Benefits of Energy Tax Credits?
Here are some of the benefits you can enjoy from energy tax credits:
- You can save money on your energy bills and taxes by lowering the cost of installing and using energy-efficient home improvements and clean energy systems.
- You can increase the value and comfort of your home by making it more energy-efficient and environmentally friendly.
- You can contribute to the fight against climate change and air pollution by reducing your greenhouse gas emissions and dependence on fossil fuels.
- You can support the growth of the clean energy industry and the creation of new jobs and innovation.
4. Who Qualifies for Energy Tax Credits?
To qualify for energy tax credits, you need to meet the following criteria:
- Ensure you have worked and earned income under $59,187 in the tax year 2022.
- Have investment income below $10,300 in the tax year 2022.
- Have a valid Social Security number by the due date of your 2022 return (including extensions).
- Be a U.S. citizen or a resident alien all year.
- Ensure you do not file Form 2555, Foreign Earned Income.
- Make energy improvements to your home in the United States that meet the requirements of the Energy Efficient Home Improvement Credit or the Residential Clean Energy Credit.
- Do not exceed the annual or lifetime limits of the credits, if applicable.
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5. How to Claim Energy Tax Credits
Here are the steps you need to follow to claim these credits:
- First, make sure that you qualify for the credits. You need to meet certain income and residency requirements, and you need to have made eligible energy improvements or installed eligible clean energy systems in your home. You can find the details of the qualification criteria on the IRS website or the ENERGY STAR
- Second, gather the necessary documents and receipts to prove your eligibility. You need to have the manufacturer’s certification statements that verify the eligibility of the improvements or systems, and you need to keep the receipts of the expenses you incur.
- Third, fill out Form 5695, Residential Energy Credits, and attach it to your tax return. You can find the form and the instructions on how to fill it out on the IRS website. enter the amounts of the qualified expenses and calculate the credit amounts for each type of improvement or system. You also need to enter the credit amounts on your Form 1040 or 1040-SR.
- Fourth, file your tax return and Form 5695 with the IRS. You can file electronically or by mail, depending on your preference. You can check the status of your refund on the IRS website or by calling the IRS Refund Hotline.
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Recap
Energy tax credits are not only a smart way to save money, but also a powerful way to make a difference in the world. By using clean or renewable energy sources, you can reduce your environmental impact, support the clean energy industry, and contribute to the fight against climate change.
Whether you are a homeowner, a renter, or a business owner, you can take advantage of these incentives and enjoy the benefits of a more energy-efficient and environmentally friendly home or workplace. Energy tax credits are a win-win situation for you and the planet.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. . For comprehensive tax, legal or financial advice, always contact a qualified professional in your area. S’witty Kiwi assumes no liability for actions taken in reliance upon the information contained herein.
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