Okay, so maybe my title goes against our Green values. Save the planet. Contribute to the greater good. But hey, we are all trying to find ways to assist in saving the planet. From energy-efficient cars to recycling our trash, taking part in the Green movement feels good. So is there really anything wrong in getting a little monetary kudos for our Green efforts?? Well, the IRS doesn’t think so.
Did you know that there are energy efficiency property tax credits available that can have a significant impact on your tax savings? There are, and whether you are an individual looking to “Go Green” or a developer that incorporates Green technology into your development projects, there are several types of credits available. I would like to show you to how to take advantage of the credits without limits and which types of property they apply to so you can take full advantage of the tax savings.
First, the qualified property has to be placed in service before 2017. The Residential Energy Efficient Property Credit is equal to 30 percent of the costs with no limits for the following types of property:
- Qualified Solar Electric Property – property that uses solar energy to generate electricity
- Qualified Solar Water heating Property – includes cost relating to solar panels and other property installed as a roof or a portion of a roof
- Qualified Small wind Energy Property – property that uses a wind turbine to generate electricity
- Qualified Geothermal Heat Pump Property – includes any equipment that uses the ground or groundwater as a thermal energy source to heat or cool your home
- Qualified Fuel Cell Property – an integrated system comprised of a fuel stack assembly and associated balance of plan components that converts fuel to electricity using electrochemical means
In addition to these costs, the credit may also be claimed for the labor costs properly allocable to the onsite preparation, assembly or original installation of the property and for piping or wiring to interconnect such property to your home. That’s right, the cost of using a builder or contractor is included in the credit.
So now that you know what types of property and costs are covered by the credit, let me share with you how the credit works. First of all, this particular credit is UNLIMITED and can be used to offset both regular and alternative minimum tax liabilities. Better yet, if the credit exceeds those tax liabilities in the year of purchase, it carries forward to future tax years.
Here is an example of how the credit works:
A family of four decides to build or purchase a new energy-efficient home. The facts surrounding their purchase are as follows:
- Household income: $200,000
- Cost of home: $600,000
- Energy Savings Cost: $100,000
- Down payment : $120,000
- Estimated mortgage interest: $ 21,000
- Estimated real estate taxes: $ 12,000
Now let’s say that the taxpayer has a taxable income of approximately $150,000 which would result in U. S. Federal Income tax of approximately $30,000. Based on the qualified alternative energy expenditures of $100,000, this family would receive a $30,000 (100,000 x 30%) tax credit. And because tax credits offset your tax dollar for dollar, the family would end up not owing a dime of tax in the year that they purchased the home. The other way to look at it, the credit (and believe it or not the IRS) effectively helped our family in the example to reduce their down payment by $30,000.
So yes, green is good. Especially if it makes the green in our pockets grow.
If you would like more information on how to take advantage of the energy-efficient tax credits, please feel free to contact me at [email protected] or 312.670.7444.