During these times of increased expenses and shrinking budgets, homeowners look for various ways to save energy when it comes to operating your home. This includes switching to energy efficient CFL bulbs, replacing old drafty windows and doors with modern replacement windows and doors, beefing up the insulation in attic spaces, and using energy efficient appliances that are ENERGY STAR certified.
Did you know that some energy efficient upgrades can actually help reduce the amount of federal income tax you owe? First-time claimers of the Residential Energy Efficiency Tax Credit can get as much as $500 back for qualifying ENERGY STAR installations in 2016.
The most common upgrades eligible for tax credits are when you install a new ENERGY STAR certified appliance. These include central air conditioners, air source heat pumps, hot water boilers, furnaces, and water heaters. The tax credit allows you to deduct 10% of the cost up to $500. Also included in this 10%/$500 credit are biomass stoves, insulation, roofing, and windows, doors, and skylights.
Keep in mind that the upgrades listed above must have been done to your existing home that is your principal residence. So if you built a new home or performed these upgrades on a rental property, the credits do not apply.
Want an even bigger tax credit? Some upgrades performed in 2016 offer bigger savings. If you installed a new qualifying geothermal heat pump, small wind turbine, or solar energy system, you can deduct 30% of the cost with no upper limit. And both existing homes and new construction qualify, regardless of whether it's your principal home or a second home. Only rental properties do not qualify. (This tax credit is actually available through the end of 2019.)
To receive these tax credits, you will need to complete IRS Tax Form 5695 and submit it with your federal tax return. You'll also need a copy of your receipts and the manufacturer's certification statement.
As always, it's important that you consult with a tax professional to ensure your 2016 upgrades qualify for the tax credit. For more information, visit the Energy Star 2016 Federal Tax Credits page at https://www.energystar.gov/about/2016_federal_tax_credits.