Here’s good news for Earth Day: there are still generous tax breaks out there for greening your home. Congress let the federal tax credits for geothermal and wind power home energy systems expire at year-end 2016, but it extended the federal solar sweetener, a tax credit worth 30% off the sticker price of a solar power system for your home. Meanwhile a dozen states still offer solar, wind or geothermal tax breaks (a 13th—Idaho—offers a tax deduction for home solar installations). And the fate of a more widely used $500 federal tax credit for energy-efficient home improvements is in play.
Why do these tax breaks matter? A tax credit reduces your tax bill dollar for dollar, so there’s real money at stake. “The goal is to encourage people when they’re making investment decisions to make energy-efficient decisions,” says Dan Bresette, director of federal affairs for the Alliance to Save Energy. “There’s an incremental cost paid back over time, but people focus on upfront costs, so the tax credit helps.”
So, if you’re moved on Earth Day, or really any day of the year, to green your home, check out these tax goodies. Brian Lips at North Carolina Clean Energy Technology Center maintains a database of these incentives– and many more programs to reward energy-consciousness –at DSIRE.org. Click on your state on the map, and search for “personal tax credit” or “personal tax deduction” for details. Other programs to look for include utility company rebates for solar, geothermal and wind. In 27 states, at least one utility company has financial incentives or rebates for solar home installations. One word of caution: Review the fine print before you buy, especially if the incentive is necessary to make it a cost-effective purchase, Lips says.
The federal solar sweetener puts an uncapped amount of money back in your pocket. The 30% credit is good through 2019. After that, it drops down to 26% in 2020 and 22% in 2021 in its last year.
Separately, 10 states have a tax credit for solar (that means you save on your state tax bill): Arizona, Hawaii, Maryland, Massachusetts, Montana, New York, Oregon, South Carolina, Utah, and Vermont.
Six states have a tax credit for geothermal: Iowa, Montana, New Mexico, Oregon, Utah, and Vermont. And seven states have a tax credit for small wind installations: Hawaii, Maryland, Massachusetts, Montana, Oregon, Utah, and Vermont.
Don’t count on these subsidies to last forever. Three states saw their credits expire in the last two years: Iowa, Kentucky, and North Carolina. And two states–New Mexico and Louisiana–ran programs that ended recently because they allocated a certain dollar amount of credits, and they were fully subscribed before the intended end date.
What about the $500 federal tax credit for home improvements? That one expired at year-end 2016. But if you’re filing on extension and you put in new insulation or energy-efficient windows, you could get a credit for 10% of the cost. If you replaced your old washer or fridge with a new energy-efficient model, you get $500 back. Note: the $500 is an overall credit limit. The fate of the credit for 2017 and beyond depends on how Congress deals with expired “tax extenders,” these on-again, off-again tax provisions—and whether it takes up tax reform.