If you purchased alternative energy equipment for your home in 2018 or plan to purchase it for 2019, you may be eligible for a tax credit of up to 30% of the cost of materials and installation. The equipment that qualifies for the “residential renewable energy tax credit” includes:
- Solar panels (i.e., photovoltaics)
- Solar-powered water heaters for the home. (solar heaters used for hot tubs or swimming pools do not qualify for the tax credit)
- Wind turbines that generate up to 100 kilowatts of electricity.
- Geothermal heat pumps that meet federal Energy Star guidelines.
- Fuel cells that rely on a renewable resource (usually hydrogen) that generates at least 0.5kilowatts of power.
Any of the above must be used to provide power for you home to qualify for the tax credit. If you ended up owing no tax for 2018, you may be able to carry any surplus energy tax credit over to future years. You claim the energy credits by filing form 5695 with your tax return.
Under current laws (which change regularly), credits for home renewable energy equipment will be reduced and phased out as follows:
2018: tax credit = 30% the cost of the system
2019: tax credit = 30% the cost of the system
2020: tax credit = 26% the cost of the system
2021: tax credit = 22% the cos of the system
2022: tax credit = 10% the cost of the system
If you decide to take advantage of this tax credit I recommend you get multiple quotes from contractors, compare the equipment options to makes sure it is apples to apples. I also recommend you stay from or be very cautious about deals that are no money down. They are just loans in advance that you pay over a long period of time. The contracts will not allow you to return the equipment if you sell your home (you have to pay it off or require the home buyer to continue with it). I do not recommend you borrow to get a tax credit. I don’t think the benefit is worth the downside of borrowing money.
I continue to be very interested in these for my own home but am still very cautious. Many years ago I used to have a geothermal system that ran off well water and had well repair costs caused by the return system. At the time the technology was relatively new and I could only find a few companies that could maintain the system, so I went back to traditional systems when it came time to replace the 2 in my house. Today there are more companies that service them (competition brings down rates) and the closed loop geothermal systems I think are more energy efficient. However, you need to stay in your home for a lot of years to save enough to justify the extra cost. When I looked at the solar panels a while ago for my home I did not see a big enough savings to justify the cost. I also noticed that the solar systems are least efficient in the winter (due to less sun exposure) when my power expenses were the highest and were most efficient during the times of year when my power expenses were not as high. So they did not save me as much money as I thought was needed to justify the expense. The tax credits are very nice but you need to balance that savings with the additional cost, the time you plan to stay in your home and savings per year from the equipment cost. If you find it is advantageous for your situation then the sooner you do it the more you will benefit from the tax credit which is being reduced in future years.