The information in this article is up to date through tax year 2020 (tax returns filed in 2021).
There are several reasons to make your home more energy-efficient. You can reduce your carbon footprint, save on utilities, and qualify for a tax incentive — for a few more years, at least.
Can I get a tax credit for energy-efficient home improvements?
If you made energy-saving improvements to your primary home during the tax year, you could qualify for the residential renewable energy tax credit. The system can be installed on a new build or an existing home. Renewable energy systems that qualify for the credit include:
- solar electric systems (solar panels)
- solar water heaters (not used for swimming pools or hot tubs)
- geothermal heat pumps
- small wind turbines
- fuel cells
How much is the tax credit for renewable energy improvements?
For home improvements made between December 31, 2020, and before January 1, 2022, the IRS allows you to claim up to 22% of the total cost paid, including installation (but excluding sales tax)*.
There is no maximum amount or limit on solar, wind, and geothermal energy equipment. For fuel cells, the maximum credit amount is $500 per kilowatt of capacity.
The credit is non-refundable, but any unused credit can be carried over into later years.
*The credit amount was 30% for systems placed in service after December 31, 2016, and before January 1, 2020. That amount was reduced to 26% for systems placed in service after December 31, 2019, and before January 1, 2021. The credit is set to expire in 2023.
How do I claim the residential energy tax credit?
TaxSlayer makes it easy to see what credits you qualify for and claim them. Here is how it works in our program.
Can I write off my smart thermostat and energy-efficient appliances (dishwasher, refrigerator, etc.)?
While these appliances can reduce your energy and water consumption and save you money on utilities, there is not a tax credit for these kinds of in-home purchases. The credit applies to alternative energy equipment such as solar panels and geothermal heat pumps. See above for the complete list of systems that do qualify.
Can I get a tax credit for buying an electric car?
There is a tax credit for certain qualifying electric cars and vehicles. The Qualified Plug-In Electric Drive Motor Vehicle Credit can be worth up to $7,500 in non-refundable credit. It applies to plug-in hybrids (PHEV) and plug-in electric (EV or PEV), vehicles that use a rechargeable battery to generate at least 5-kilowatt hours of capacity. Note that traditional hybrid vehicles (HEV) which do not draw power externally do not qualify for the credit.
Your vehicle must be purchased new (not used or leased) to qualify for the electric car tax credit. It must also:
- Be made by an eligible manufacturer under the Clean Air Act
- Be suitable to drive on highways and public streets
- Have a weight rating of fewer than 14,000 lbs
- Have at least four wheels