The IRS recently reminded homeowners who make improvements like replacing old doors and windows, installing solar panels or upgrading a hot water heater that they may qualify for home energy tax credits. This came with the IRS warning that homeowners "should know what these credits can do for them – and be careful of exaggerated claims (solar) companies trying to get their business may make."
While it's not a dollar-for-dollar tax refund, these credits can have a significant impact on tax liability. From 2022 to 2032 homeowners qualify for a federal credit worth 30% of the cost of qualifying solar equipment and qualifying energy efficient additions.
The Energy Efficient Home Improvement Credit is only for improvements, additions or renovations to an existing home up to a lifetime maximum of $500 for improvements, additions or renovations to an existing home such as energy efficient doors, windows, skylights, and air conditioners.
The Residential Clean Energy Credit is for qualifying solar equipment installed on either an existing home or a newly constructed home. It is worth 30% of the cost of solar systems installed. The catch is that the credit (30% of the cost) can be claimed up to the tax liability on the tax return. As such it reduces the tax, but it is not a refundable credit. Any unused credit will carry forward year-to-year until it is used up.
The state of Hawaii Renewable Energy Technologies Income Tax Credit offers a credit of 35% of the cost (maximum credit $5,000) for each solar system. As with the IRS credit, this credit can be claimed up to the tax liability on the tax return. As such it reduces the tax, but it is not a refundable credit. Any unused credit will carry forward year-to-year until it is used up.
However, in fairness to retired and lower income taxpayers, unlike the IRS, the state does offer a refundable credit. A taxpayer claiming that options will lose 30% of the overall credit and will be refunded the remainder of the credit that is in excess of the current year tax liability. This is a nice option for retires and other who may have little to no tax liability and want to get what they can refunded right away. For those with higher tax liability it pays more in the long run to let the unused credit carry forward each year until it is used.
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While it's not a dollar-for-dollar tax refund, these credits can have a significant impact on tax liability. From 2022 to 2032 homeowners qualify for a federal credit worth 30% of the cost of qualifying solar equipment and qualifying energy efficient additions.
The Energy Efficient Home Improvement Credit is only for improvements, additions or renovations to an existing home up to a lifetime maximum of $500 for improvements, additions or renovations to an existing home such as energy efficient doors, windows, skylights, and air conditioners.
The Residential Clean Energy Credit is for qualifying solar equipment installed on either an existing home or a newly constructed home. It is worth 30% of the cost of solar systems installed. The catch is that the credit (30% of the cost) can be claimed up to the tax liability on the tax return. As such it reduces the tax, but it is not a refundable credit. Any unused credit will carry forward year-to-year until it is used up.
The state of Hawaii Renewable Energy Technologies Income Tax Credit offers a credit of 35% of the cost (maximum credit $5,000) for each solar system. As with the IRS credit, this credit can be claimed up to the tax liability on the tax return. As such it reduces the tax, but it is not a refundable credit. Any unused credit will carry forward year-to-year until it is used up.
However, in fairness to retired and lower income taxpayers, unlike the IRS, the state does offer a refundable credit. A taxpayer claiming that options will lose 30% of the overall credit and will be refunded the remainder of the credit that is in excess of the current year tax liability. This is a nice option for retires and other who may have little to no tax liability and want to get what they can refunded right away. For those with higher tax liability it pays more in the long run to let the unused credit carry forward each year until it is used.
For more information visit: