There’s good news for homeowners who want to make energy-efficiency home improvements: The latest Congressional budget deal restored some energy efficiency tax credits that had been allowed to expire. These credits are known as “tax extenders” because they had been in force but had expired.
Tax credits provide a dollar-for-dollar reduction of your income tax liability. For example, a $1,000 tax credit saves you $1,000 in taxes. They are different from tax deductions, which lower your taxable income.
Here’s a summary of what you may be eligible for:
- Geothermal heat pumps. The tax credit is retroactive to Jan. 1, 2017, and has been extended to Jan. 1, 2022. You may want to act, soon, if you are considering installing a geothermal unit, as the credit is 30% of the system cost for units placed in service from Jan. 1, 2017 through 2019. The credit drops to 26% for 2020 and 22% for 2021.
- Wind energy. The installation of small wind units has the same credit schedule as geothermal heat pumps.
- Solar. Home solar units did not gain any additional credits in this spending bill, but those credits have not, yet, expired. They are on the same “sunset” schedule as geo and wind.
- Energy-efficient home improvements. There is, now, a tax credit of up to $500 that covers up to 10% of the price a homeowner pays for making qualified home improvements. Possible improvements include new windows, insulation or upgraded heating and cooling equipment.
And just for fun, credits were restored for the purchase of an electric motorcycle or three-wheeled electric vehicle. The credit is 10% of the purchase up to $2,500.
According to efile.com, the IRS is reviewing the legislation and will provide additional information soon. Consult with your tax preparer for updated information.