Green Tax Breaks: Are You Claiming All the Credits You Deserve?

In recent years, the IRS has offered “green” tax credits to individuals who purchase qualifying residential energy-efficient equipment and certain electric vehicles. Some of these breaks expired at the end of 2016. But others are still ripe for the taking in 2017 and beyond. Here’s what you need to know to take advantage.

Expanded Green Tax Breaks for 2016

For 2016, individual taxpayers could claim a 30% federal tax credit for the following expenditures for a U.S. residence, including a vacation home:

  • Qualified solar electricity generating equipment,
  • Qualified solar heating equipment,
  • Qualified wind energy equipment,
  • Qualified geothermal heat pump equipment, and
  • Qualified fuel cell electricity generating equipment. (The maximum credit is limited to $500 for each half-kilowatt of fuel cell capacity.)

For 2017, only the first two items are still eligible for the 30% credit.

Additionally, a more modest residential energy credit also expired at the end of 2016. It had a lifetime maximum of $500 and covered qualified expenditures for:

  • Advanced main air circulating fans,
  • Natural gas, propane, and oil furnaces and hot water boilers,
  • Electric heat pumps,
  • Electric heat pump water heaters,
  • Biomass fuel stoves,
  • High-efficiency central air conditioners,
  • Natural gas, propane and oil water heaters,
  • Energy-efficient windows, skylights and doors,
  • Energy-efficient roofing products, and
  • Energy-efficient insulation.

You can claim these now-expired credits on your 2016 federal tax return if you completed installation of the qualified equipment last year. If you already filed your 2016 return without claiming your rightful credits, your tax pro can help you file an amended return to collect the tax savings.

Residential Solar Energy Credit

You can claim a federal income tax credit equal to 30% of expenditures to buy and install qualifying energy-saving solar equipment for your home. Because this gear is expensive, it can generate big credits. And there are no income limits — even billionaires are eligible for this tax break. The 30% credit is available through 2019. In 2020, the credit rate drops to 26% and then to 22% in 2021. After that, the credit is scheduled to expire.

The credit can be used to reduce both your regular federal income tax bill and your alternative minimum tax (AMT) bill, if applicable.

The credit equals 30% of qualified expenditures (including costs for site preparation, assembly, installation, piping and wiring) for the following:

Qualified solar electricity generating equipment. This must be installed in a U.S. residence, including your vacation home. You must use the residence personally; so, the credit can’t be claimed for a property that is used exclusively as a rental.

Qualified solar water heating equipment. This also must be installed in a U.S. residence, including your vacation home. To qualify for the credit, at least half of the energy used to heat water for the property must be generated by the solar equipment. The credit can’t be claimed for a property that is used only as a rental. Also, you can’t claim the credit for equipment used to heat a swimming pool or hot tub. No credit is allowed unless the equipment is certified for performance by the nonprofit Solar Rating & Certification Corporation or a comparable entity endorsed by the state where your residence is located. Keep the certification with your tax records.

You can only claim the credit for expenditures on a “home,” which can include a house, condo, co-op apartment, houseboat, or mobile home, or a manufactured home that conforms to federal manufactured home construction and safety standards.

Keep track of how much you spend, including any extra amounts for site preparation, assembly, and installation. Also record when the installation is completed, because you can claim the credit only in the year when the installation is complete. In addition, ask your tax advisor whether you’re eligible for state and local tax benefits, subsidized state and local financing deals, and utility company rebates.

Credit for New Plug-In Electric Vehicles

Another green tax break that’s still available for 2017 and beyond is the federal income tax credit for qualifying new plug-in electric vehicles. The credit can be worth up to $7,500.

To be eligible for the credit, a vehicle must:

  • Be new (not used or rebuilt),
  • Draw propulsion from a battery with at least four kilowatt hours of capacity,
  • Use an external source of energy to recharge the battery (thus the term “plug-in”),
  • Be used primarily on public streets, roads, and highways,
  • Have four wheels,
  • Meet applicable federal emission and clean air standards, and
  • Be used primarily in the United States.

It can be either fully electric or a plug-in electric/gasoline hybrid. Finally, the vehicle must be purchased rather than leased. If you lease an eligible vehicle, the credit belongs to the manufacturer, and that may be factored into a lower lease payment.

The credit equals $2,500 for a vehicle powered by a four-kilowatt-hour battery, with an additional $417 for each additional kilowatt hour of battery capacity. The maximum credit is $7,500. Buyers of qualifying vehicles can rely on the certification of the allowable credit amount provided by the manufacturer or distributor.

The credit begins phasing out over four calendar quarters once the total number of qualifying vehicles sold by a particular manufacturer for use in the United States reaches 200,000. So far, no manufacturers have crossed that line, although General Motors might reach this threshold in 2018 or 2019 if sales of the Chevy Bolt and Volt continue at their current pace.

The credit can be used to offset your regular federal income tax and any alternative minimum tax (AMT) liability. And there are no income restrictions.

Not all eligible vehicles qualify for the maximum $7,500 credit. Some plug-in electric/gas hybrids are eligible only for lower amounts. According to Edmunds.com, the current list of eligible vehicles and credit amounts is as follows:

Fully Electric Vehicles

Make and Model Credit
BMW i3 $7,500
Chevrolet Bolt $7,500
Fiat 500e $7,500
Ford Focus Electric $7,500
Hyundai Ioniq Electric $7,500
Kia Soul EV $7,500
Mercedes-Benz B-Class EV $7,500
Nissan Leaf $7,500
Tesla Model S $7,500
Tesla Model X $7,500

Plug-In Electric/Gas Hybrids

Make and Model Credit
Audi A3 e-tron $4,205
BMW i3 (with range extender) $7,500
BMW i8 $3,793
Chevrolet Volt $7,500
Chrysler Pacifica $7,500
Ford C-Max Energi $4,007
Ford Fusion Energi $4,007
Hyundai Sonata Plug-In Hybrid $4,919
Kia Optima Plug-In $4,919
Toyota Prius Prime $4,502
Volvo XC90 T8 $4,585

 

In addition, residents of some states may be eligible for state income tax credits, rebates, or reduced vehicle taxes and registration fees for buying or leasing electric vehicles.

Need Help?

These green tax breaks are available for a limited time only. Contact your tax advisor for help claiming and maintaining adequate records to support these eco-friendly purchases.

 

 

Eric Cohen, CPA is the President and Founder of E. Cohen and Company CPAs, a full-service CPA firm serving nonprofit organizations, government contractors, professional service companies and other industries with audit, tax and business advisory services for over 25 years. The firm was commended as a SmartCPA Reader’s Choice by SmartCEO magazine and a “Best Accounting Firm to Work For” by AccountingToday magazine. For more information, visit www.ecohencpas.com or call 301-917-6200.