October 5, 2023 10:00 pm

The Residential Clean Energy Credit

If you are considering updates to your U.S. based home, you may consider taking advantage of the Residential Clean Energy credit which is 30% of the costs from now through 2033. Eligible property includes: fuel cell property, solar electric panels, solar water heaters, wind turbines, geothermal heat pumps, and battery storage technology. Qualified expenses include the cost of labor assembly and installation of new (not previously owned) clean energy property. The new property must generate clean energy to qualify for the credit.

I’m considering Clean energy upgrades, what should I know?

There are a few tax considerations you should be aware of when making decisions about home improvements to ensure you are able to take advantage of the available Residential Clean Energy Credit. You should be aware of your eligibility, the credit limits, and eligibility.

Who may claim the credit. Eligible taxpayers include both homeowners and renters who make the upgrades. Specifically, landlords are not eligible for the credit. The individual making the upgrades and incurring the cost must be living at the residence updated. The costs incurred may be for an existing home or a newly constructed home. Improvements to a second home may be eligible if it is in the United States and is not rented to others. The credit is for personal residences therefore, business property is not eligible. However, if the home is used partly for business, a reduced credit may be available.

Credit Limits. The Residential Clean Energy Credit is 30% of the costs of the qualified clean energy, including labor, assembly, and installation. With the exception of fuel cell property, no dollar limit exists. The credit for fuel cell property is 30% of the cost with a maximum credit of

$500 for each half kilowatt of capacity. Costs should be reduced by any rebate or subsidies received before determining the credit.

If the home is used partially for business purposes, the maximum credit allowed depends on the percent of home usage. If the home is used 20% or less for business purposes, the full 30% credit is allowed. If the home is used more than 20% for business purposes, the credit is based on the share of allocated expenses to nonbusiness use.

Improvement eligibility. The eligible property must meet certain energy efficient standards. Solar water heaters must be certified by the Solar Rating Certification Corporation or comparable entity. Geothermal heat pumps must meet Energy Star requirements. Battery storage technology must have a capacity of at least 3 kilowatt hours. Be sure to confirm eligibility before making the purchase.

I did not get to use the full credit, now what?

The credit is nonrefundable, but has no limit. If you are ineligible to claim the full credit you are entitled to, the excess unused credit may be carried forward to future years. The credit also holds no lifetime limits. Therefore, should you decide to make additional improvements qualifying for the credit, you may be eligible even if you already claimed the credit in prior tax years.