How to Claim Credits for Your Energy-Efficient Appliances
From refrigerators to dishwashers, a wide variety of appliances are essential to keeping a modern home clean, efficient, and comfortable. But many traditional appliances can also take a heavy toll on the environment, which is why a range of tax incentives have been introduced over the years to encourage homeowners to switch to greener alternatives.
The Inflation Reduction Act of 2022 is a landmark piece of legislation for eco-friendliness, laying out incentives for clean buildings, manufacturing, travel, and more. It also extends and improves upon existing federal tax credits for energy-efficient appliances.
Below, we’ll take a look at a few ways the new law helps homeowners save, as well as what you can do to make sure you qualify. Let’s dive in.
Can You Claim Energy-Efficient Appliances on Your Taxes?
Under current U.S. tax law, you usually can’t claim credits on your tax return for household appliances like energy-efficient white goods. However, you can claim for renewable energy systems and home improvements.
For instance, the IRS offers tax credits for energy-efficient central air conditioning systems, non-solar water heaters, and advanced main air circulating fans. Some tax credits are specifically tailored for low- and moderate-income households to make energy efficiency more affordable, while others are open to all taxpayers.
What Can You Claim?
Despite the name, the Inflation Reduction Act was designed to do a lot more than cut inflation. Much of the law concerns efforts and programs designed to boost green energy. Some of its contents, like the electric vehicle tax credit, have attracted lots of attention, but the IRA also extends a series of IRS tax incentives designed to encourage the adoption of energy-efficient home improvements.
Here’s a look at some of the credits you could qualify for.
Energy Efficiency Home Improvement Credit
Formerly known as the Nonbusiness Energy Property Credit, the Energy Efficiency Home Improvement credit increases the amount you can claim on your taxes from the cost of installing certain upgrades to 30%. The total amount you can claim, with one exception, is $1,200 per year. According to the Environmental Protection Agency’s ENERGY STAR® program, that means you can claim for things like:
Heat pump water heaters
Biomass stoves and boilers
Insulation and products that reduce air leaks, such as weatherstripping
Windows and skylights
Central air conditioners
Natural gas, oil, or propane water heaters
Natural gas, oil, or propane furnaces and boilers
Electric panel upgrades
Home energy audits
There are annual limits to how much you can claim on your tax return with this credit. Here’s how they break down:
$250 per energy-efficient exterior door with a maximum of $500 per year
$600 for exterior windows and skylights, central air conditioning units, electric panels and other electrical improvements, approved water heaters, furnaces, and hot water boilers
$2,000 for heat pumps and biomass stoves and boilers
$150 for home energy audits.
Residential Clean Energy Credit
The Residential Clean Energy Credit was originally passed into law under the Energy Policy Act as the Federal Investment Tax Credit in 2005. Under the Inflation Reduction Act, the credit has been extended by 10 years to 2034, and filers can claim up to 30% for qualified residential energy systems through it until 2032. After that, the amount will fall to 26% in 2033 and 22% in 2034.
There’s no limit on the amount you can claim per year, but the revised credit no longer covers biomass improvements. However, it now allows filers to claim for energy storage improvements with a capacity of at least three kilowatt hours.
Alternative Fuel Refueling Property Credit
This credit was originally set to expire in 2021 until it was extended through 2032 by the Inflation Reduction Act. Under it, you can claim 30% up to $1,000 for qualified refueling equipment for electric cars and vehicles run on other alternative fuels.
How to Claim Energy-Efficient Tax Credits on Your Tax Return
To claim for energy-efficient appliances and other improvements, you’ll have to complete IRS Tax Form 5695. The form contains detailed instructions for applying the amounts listed in your receipts. It’s a good idea to keep the Manufacturer’s Certification Statement for any improvements in case your claim is audited.
To sum up, you can’t claim for most household appliances on your tax return. However, there are still significant savings to be had if you make any of a wide range of energy-efficient home improvements. Plus, you may qualify for other tax credits at the state or local level, which can offset the cost of making a greener, more sustainable home.
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