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What Energy Efficient Products Are Tax Deductible

If you recently installed energy-efficient improvements to your home, such as solar panels, you may be able to claim a credit for your investment. There are two energy tax credits currently available for 2020 Tax Returns: the Residential Energy Efficient Property Credit and the Nonbusiness Energy Property Credit. You may claim these nonrefundable tax credits on your return via Tax Form 5695.

Residential Energy Efficient Property Credit

Right now, the ITC is worth 26% of your total system cost. This includes the value of parts and contractor fees for the installation. For example, if it costs $10,000 to buy and install your system, you would be owed a $2,600 credit.

EnergySage breaks down the three steps you need to take to claim the solar tax credit. We’ve included them below.   

  1. Determine if you are eligible- Make sure you have enough tax appetite to use the federal ITC against your total taxes. Remember, anything extra is eligible to roll over the next year. 
  2. Complete IRS Form 569 –This form validates your qualification for renewable energy credits and can be obtained online. 
  3. Add your renewable energy credit information to your typical Form 1040- Loop your renewable energy credit information into your regular tax form. 

You can find the detailed step-by-step instructions on the steps above and learn about filling out your forms here.  There are also many local tax incentives and rebates available. For more information about incentives available by state, visit dsireusa.org.  

Nonbusiness Energy Property Credit

There are also other energy efficiency upgrades, aside from solar, that can be claimed on your taxes as well. The nonbusiness energy property credit is only available for those improvements that are approved by the IRS. The improvements must meet energy efficiency standards approved by the IRS to qualify for the credit. Qualified energy efficiency improvements are any energy-efficient building envelope component that satisfies the energy conservation criteria set by tax law. For this credit, the IRS distinguishes between two kinds of upgrades.

The first is “qualified energy efficiency improvements,” and it includes:

  • Energy-efficient windows
  • Energy-efficient doors
  • Energy-efficient skylights
  • Insulation
  • Metal and asphalt roofs

The second category is “residential energy property costs.” It includes:

  • Central air conditioning
  • Advanced air circulating fans
  • Biomass stoves
  • Air-source heat pumps
  • Gas furnace and boilers
  • Gas and electric heat pump water heaters

You can claim a tax credit for 10% of the cost of qualified energy efficiency improvements and 100% of residential energy property costs. This credit is worth a maximum of $500 for all years combined, from 2006 to its expiration. Specific maximum dollar limits are: 

  • $200 for exterior windows
  • $300 for water heaters, heat pumps, or central air conditioners
  • $150 for a furnace or boiler
  • $50 for an advanced main air circulating fan used in a furnace

Interested in seeing if solar is right for you? Schedule your free solar consultation today where our expert solar consultants can help build the system that is perfect for your needs. If you are already an Elevation solar customer, talk to your friends and family and join our customer referral program! 

Schedule Your Virtual Solar Consultation

*Important Disclaimer: Elevation Home Energy Solutions is passionate about helping you build an Elevated home. Please consult with your tax professional to verify all tax codes applicable to your unique situation.  

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