- Whether you bought an electric vehicle or you finally decided to get energy-efficient windows and heating and cooling systems, you might qualify for tax credits to help defray the expense.
- Some of these green tax credits are set to expire at the end of this year and must be renewed by Congress to be in place for the future.
- People who bought an electric or hybrid car may be eligible for up to $7,500 in federal tax credits. Be aware that not all cars will qualify: Tesla vehicles purchased after 2019 aren’t eligible.
This year, doing good for the planet can also help you trim your tax bill.
That's because a basket of provisions in the tax code reward individuals and businesses for taking steps toward energy efficiency.
Whether you added a few solar panels to your roof, bought a hybrid car or installed new windows in 2020, you might be able to save a few bucks when you file your taxes next spring.
"Individuals and businesses making these investments are doing it for two economic reasons," said Katherine Breaks, managing tax director at KPMG.
More from Impact Investing:
Here's why 401(k) plans lag in green investment options
Biden administration could be impact investing game changer
How to seize climate change investing opportunities
"First, there's the tax benefit," she said. "The other reason to do it is that you get energy savings."
Indeed, powering a home has become more costly over the course of the year — particularly as employees continue to work remotely.
The average cost price of electricity for residential customers ticked up to 13.55 cents per kilowatt hour in September 2020, according to the U.S. Energy Information Administration.
That's up from 13.16 cents per kilowatt hour in September 2019.
Grab your receipts and consider the tax incentives that are up for grabs this year.
Rewards for your new car
One of the best-known tax breaks for going green is the tax credit of up to $7,500 for new electric or plug-in hybrid cars.
The credit starts to phase out as manufacturers hit 200,000 electrical vehicles sold.
Tesla, which delivered 139,000 vehicles in the third quarter — an approximation of the company's sales — phased out of the credit at the end of 2019.
Know that the $7,500 credit is nonrefundable. That means it reduces your federal income tax liability on a dollar-for-dollar basis, but it doesn't result in cash in hand.
The U.S. Department of Energy offers a list of eligible cars and the size of the federal tax credit here.
Expiring at the end of 2020
"Tax extenders" are a bundle of temporary provisions that have expired and must be renewed by Congress each year in order for taxpayers to claim them.
At times, lawmakers revive the tax extenders retroactively, which can result in taxpayers filing amended returns for past years in order to scoop up the credits or deductions.
In all, 33 provisions are due to sunset at the end of 2020, making this the last year you can claim them — unless legislators act.
Energy-conscious individual taxpayers will want to keep a look out for the following:
• Nonbusiness energy property tax credit: You can collect a credit of up to 10% of the cost of the equipment, as much as $500, for energy-efficient home improvements. This includes heating and air conditioning systems and water heaters. EnergyStar has a list of eligible equipment here.
• Qualified fuel cell motor vehicles: This $4,000 tax credit rewards consumers who bought cars that run on hydrogen this year.
"Some of these vehicles work in tandem with batteries, but this isn't the broader category of battery powered or electrical vehicles," said Will McBride, vice president of federal tax and economic policy at the Tax Foundation.
• Two-wheeled plug-in electric vehicles: This credit is equal to 10% of the cost of your battery-powered scooter, up to $2,500.
• Alternative fuel vehicle refueling property: If you install a fueling station at your main house to recharge your green car, you may be eligible for a credit of 30% of the installation cost or up to $1,000.
Solar power now and next year
Maybe after spending the last nine months working from home, you've decided to put some solar panels on your roof to save on your electrical bill.
Of course, this is after you analyzed the cost of installing the panels, which can run from $15,000 to $25,000 before tax incentives take effect, according to the Center for Sustainable Energy.
If you put your photovoltaic system into service this year, you're eligible for a 26% tax credit.
Time is of the essence: This tax credit falls to 22% for systems installed in 2021 and then expires altogether in 2022 — unless Congress renews it.
"Other things that qualify would be geothermal heat pumps and solar water heating property," said Breaks at KPMG. "There's no benefit for anything installed after 2021, so this is the year to maximize."
Source: Read Full Article