Have you done a home improvement that will qualify you for an energy tax credit? If so, you’ll need to have a good idea about how to do the necessary calculations. The following guide will take you through the process and help you learn how to make the most of the incentive.
The Federal Tax Credit for Consumer Energy Efficiency
This tax credit is available for several types of residential property improvements introduced in the period until December 31, 2016. The credit totals 30 percent of the project’s cost and up to 500 dollars per 0.5 kilowatt of power capacity.
The credit will apply to improvements of existing homes and new construction. The property will have to be a principal residence, a second home or a vacation property. The only exception comes in the case of fuel cells, which should be installed in the principal residence only.
The types of projects that will qualify you for the energy tax credit include geothermal heat pump installations, small wind turbines for residential use, solar energy systems and solar water heating systems.
US homeowners that execute any of the mentioned projects in the period until the end of 2016 are eligible for energy tax credits.
People that have relied on a solar lease or a power purchase agreement (PPA) do not qualify for a tax credit. In such instances, the leasing company is considered the owner of the equipment installed on the property. A number of leasing companies will actually take the tax credit in consideration when calculating your rate, so you’ll still benefit from the opportunity.
Calculating the Energy Tax Credit
This part of the process is the most confusing one for a number of homeowners. A few basic steps will need to be followed to reach the accurate amount.
The 30 percent should be calculated on the basis of the net cost of the installed equipment. You’ll first have to deduct the value of any rebate (both utility and state). The amount that you get after you make the calculation can be used to pay the taxes you owe.
Keep in mind that the amount you get is not refundable. If it exceeds the taxes you owe during the particular year, you can use the amount partially or fully to cover your taxes during the next year.
Applying for an Energy Tax Credit
Now that you know what it takes to qualify for the credit and how to make the calculations, it’s time to take a look at the application process. Fortunately, it’s a simple one.
You can visit the Energy Star website for more information about the documents you need to fill out.
For products that you have purchased and installed during 2014, you will need to file the 2014 version of Form 5695. In the form, you’ll need to list details like qualified solar/wind/geothermal property cost, the kilowatt capacity of the equipment and the credit carry forward information. Following the basic steps, you’ll enter the tax credit amount at the bottom of Form 5695.
The figure you get should be entered on you 1040 form. Submit form 5695 alongside your 2014 taxes and you’re done.
There is nothing complicated about calculating your energy tax credit and applying for it. Take your time to go over the calculations a few times to make sure everything’s accurate. Once you’re certain that you’ve filled the forms correctly, you’ll benefit from this opportunity to decrease your taxes.
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