Post-Tax Reform, several tax incentives still exist for residential home owners interested in energy-efficient home improvements. A couple of these tax incentives are outlined below. Taxpayers considering energy-efficient improvements should incorporate the following tax benefits into their decision process.
RESIDENTIAL ENERGY EFFICIENT PROPERTY CREDIT (REEP)
The 2018 Bipartisan Budget Act signed in February 2018 extended Residential Energy Efficient Property Credit (REEP) for energy-efficient improvements to a taxpayer’s home. The credit is extended through 12/31/21 and can be claimed on 2018-2021 tax year returns.
As you may know, the REEP credit involves expenditures to solar electric property; solar water heating property; fuel cell power plants; small wind energy property; and geothermal heat pump property. This tax credit is 30% of the cost of alternative energy equipment that you installed on or in your home. The home must be your main home where you live most of the year. There is not maximum placed on this credit. Qualified equipment includes solar panels, solar-powered water heaters, geothermal heat pumps, wind turbines, and fuel cells. If your REEP credit is more than the tax you owe, you can carry forward any unused portion of this credit to next year’s tax return. This REEP credit is available through 2021.
CREDIT FOR NONBUSINESS ENERGY PROPERTY (CNEP)
The other primary Residential Energy Credit is the Credit for Nonbusiness Energy Property (CNEP). The REEP credit and the CNEP credit are often confused.
As of October 2018, the CNEP credit has expired and is only available for property placed in service on 12/31/17 or before. Tax policy experts expect that Congress will extend the credit to 2018 but we don’t know yet.
Previously, the CNEP could be taken when qualified energy efficient improvements or expenditures were made to your principal residence, including new insulation; replacement windows; skylights and doors; central air conditioners; certain water heaters, furnaces or boilers; and a new metal or asphalt roof specifically treated to reduce heat loss. In order to qualify for the CNEP, there must be a reasonable expectation that the qualified energy efficiency improvements will remain in use for at least five years. In addition, the energy property had to meet certain energy efficiency criteria. See the following link to the energystar.gov website for an outline of these criteria. https://www.energystar.gov/about/federal_tax_credits/2017_non_business_energy_property_tax_credits
The CNEP was equal to 10% of qualified energy efficiency improvements installed plus qualified residential energy property expenditures. The maximum CNEP is equal to $500 after reduction by CNEP credits allowed in previous years.
MASSACHUSETTS SOLAR AND WIND ENERGY CREDIT
Massachusetts tax law allows taxpayers who own or rent a principal residence in MA a potential tax credit for renewable energy source property installed at their home. The credit amount is equal to 15% of the qualified property up to $1,000. The $1,000 limit is a lifetime limit for the entire time the taxpayer lives in the principal residence that is improved.
Improvements paid for by the landlord/owner not living at the property are not eligible.
In order to claim the credit, the following criteria must be met:
- Property installed must be original use
- Property must be expected to last five years
- Property must meet the performance and quality standards prescribed by the Commission of Revenue. These requirements are outlined under MA Code 830 CMR 62.6.1.
The tax credit is claimed by filing MA Schedule EC. According to the instruction for Schedule EC, qualified renewable energy source property is property which transmits or uses solar energy for heating or cooling, for providing hot water or electricity, or which uses wind energy to generate electricity or mechanical forms of energy for non-business residential purposes.
Examples of renewable solar and wind energy items include:
- Collectors (i.e. Solar Panels, Wind Turbines)
- Rock Beds
- Heat Exchangers
- Wind-Driven Generators
- Power Conditioning and Storage Devices
Several tax incentives exist at both the Federal and state level for home owners interested in energy-efficient home improvements. When these types of improvements are completed, make sure you don’t miss the opportunity to reduce your income tax bill.
The above credits only apply to residential properties. Several other credits are available to business and rental property owners interested in installing energy-efficient property. The following website is a great resource to find energy tax incentives, including Federal, state, and local.
Please feel free to reach out with questions you have on Energy Tax Credits or any other tax topic.