Time is running out on the 30% federal tax credit for adding solar, wind, geothermal, or fuel cell equipment to your home. The credit is scheduled to expire at the end of 2016
Who Can Claim the Credit
Whether you are eligible to claim the Residential Energy Efficient Property Credit will depend primarily on three things: the type of alternative energy equipment you choose, where you install it, and when the installation is complete.
The credit can generally be claimed for solar panels, solar water heaters, geothermal heat pumps, small wind turbines, and residential fuel cells that meet specific energy standards.
The equipment must be installed in a home (e.g., house, houseboat, mobile home, co-op apartment, or condo) in the United States that you own and use as your residence. The home can be an existing one or a newly constructed one. It can be your principal residence or your second home, except when claiming the credit for fuel cells. The credit for fuel cells is limited to your principal residence.
The credit is scheduled to expire at the end of 2016 (unless Congress extends the expiration date), so the installation must be complete by December 31, 2016 for you to claim the credit. And if the equipment is installed in a home that is being constructed or reconstructed, you must also begin using the home by the end of 2016.
How to Find Out if the Equipment Qualifies for the Credit
The equipment’s packaging or the manufacturer’s website should contain a written statement from the manufacturer certifying that the equipment qualifies for the tax credit. Keep a copy of it for your records, along with the receipts for the equipment and the installation.
The Credit’s Value
The credit generally equals 30% of the cost of the qualified equipment, the cost of the wiring and piping to connect it to your home, and the labor to install it.
There are no upper limits on the credit, except for fuel cells. To give you a hypothetical example, let’s say you spend $30,000 on the purchase and installation of qualified solar panels for your home. On your federal tax return, you can generally claim a tax credit for 30% of your $30,000 expense, which is $9,000. Tax credits reduce your tax liability dollar-for-dollar. So in this example, your federal taxes for 2016 would be reduced by $9,000 (but not below zero). The basis of your home would also be reduced by the amount of any credit allowed.
The credit for fuel cells is 30% of the cost, up to $500 per 0.5 kilowatt of power capacity.
The value of your credit may be reduced in certain situations, such as if the business use of your home exceeds 20% or if you receive a subsidy from a public utility for adding the equipment and do not include the subsidy in your gross income. Your tax advisor can help you estimate the credit amount you might receive based on your specific circumstances.
How to Claim the Credit
For equipment installed and ready for use in 2016, the credit is claimed on IRS Form 5695 when you file your federal tax return for 2016.