In recent years, the IRS has offered “green” tax credits to individuals who purchase qualifying residential energy-efficient equipment and certain electric vehicles. Some of these breaks expired at the end of 2016. But others are still ripe for the taking in 2017 and beyond. Here is what you need to know to take advantage.
Residential Solar Energy Credit
You may claim a federal income tax credit equal to 30% of expenditures to buy and install qualifying energy-saving solar equipment for your home. Because this gear is expensive, it may generate big credits. And there are no income limits — even billionaires are eligible for this tax break. The 30% credit is available through 2019. In 2020, the credit rate drops to 26% and then to 22% in 2021. After that, the credit is scheduled to expire.
The credit may be used to reduce both your regular federal income tax bill and your alternative minimum tax (AMT) bill, if applicable. The credit equals 30% of qualified expenditures (including costs for site preparation, assembly, installation, piping and wiring) for the following:
- Qualified solar electricity generating equipment. This must be installed in a U.S. residence, including your vacation home. You must use the residence personally; so, the credit cannot be claimed for a property that is used exclusively as a rental.
- Qualified solar water heating equipment. This also must be installed in a U.S. residence, including your vacation home. To qualify for the credit, at least half of the energy used to heat water for the property must be generated by the solar equipment. The credit cannot be claimed for a property that is used only as a rental. Also, you cannot claim the credit for equipment used to heat a swimming pool or hot tub. No credit is allowed unless the equipment is certified for performance by the nonprofit Solar Rating & Certification Corporation or a comparable entity endorsed by the state where your residence is located. Keep the certification with your tax records.
You can only claim the credit for expenditures on a “home,” which can include a house, condo, co-op apartment, houseboat, or mobile home, or a manufactured home that conforms to federal manufactured home construction and safety standards.
Keep track of how much you spend, including any extra amounts for site preparation, assembly, and installation. Also record when the installation is completed, because you can claim the credit only in the year when the installation is complete. In addition, ask your Smith Schafer professional whether you are eligible for state and local tax benefits, subsidized state and local financing deals, and utility company rebates.
Credit for New Plug-In Electric Vehicles
Another green tax break still available for 2017 and beyond is the federal income tax credit for qualifying new plug-in electric vehicles. The credit can be worth up to $7,500.
To be eligible for the credit, a vehicle must:
- Be new (not used or rebuilt)
- Draw propulsion from a battery with at least four kilowatt hours of capacity
- Use an external source of energy to recharge the battery (thus the term “plug-in”)
- Be used primarily on public streets, roads, and highways
- Have four wheels
- Meet applicable federal emission and clean air standards
- Be used primarily in the United States
It can be either fully electric or a plug-in electric/gasoline hybrid. Finally, the vehicle must be purchased rather than leased. If you lease an eligible vehicle, the credit belongs to the manufacturer, and that may be factored into a lower lease payment.
The credit equals $2,500 for a vehicle powered by a four-kilowatt-hour battery, with an additional $417 for each additional kilowatt hour of battery capacity. The maximum credit is $7,500. Buyers of qualifying vehicles can rely on the certification of the allowable credit amount provided by the manufacturer or distributor.
The credit begins phasing out over four calendar quarters once the total number of qualifying vehicles sold by a particular manufacturer for use in the United States reaches 200,000. So far, no manufacturers have crossed that line, although General Motors might reach this threshold in 2018 or 2019 if sales of the Chevy Bolt and Volt continue at their current pace. The credit can be used to offset your regular federal income tax and any alternative minimum tax (AMT) liability. And there are no income restrictions.
Not all eligible vehicles qualify for the maximum $7,500 credit. Some plug-in electric/gas hybrids are eligible only for lower amounts. According to Edmunds.com, the current list of eligible vehicles and credit amounts is as follows:
Fully Electric Vehicles
|Make and Model||Credit|
|Ford Focus Electric||$7,500|
|Hyundai Ioniq Electric||$7,500|
|Kia Soul EV||$7,500|
|Mercedes-Benz B-Class EV||$7,500|
|Tesla Model S||$7,500|
|Tesla Model X||$7,500|
Plug-In Electric/Gas Hybrids
|Make and Model||Credit|
|Audi A3 e-tron||$4,205|
|BMW i3 (with range extender)||$7,500|
|Ford C-Max Energi||$4,007|
|Ford Fusion Energi||$4,007|
|Hyundai Sonata Plug-In Hybrid||$4,919|
|Kia Optima Plug-In||$4,919|
|Toyota Prius Prime||$4,502|
|Volvo XC90 T8||$4,585|
In addition, residents of some states may be eligible for state income tax credits, rebates, or reduced vehicle taxes and registration fees for buying or leasing electric vehicles.
These green tax breaks are available for a limited time only. Contact your Smith Schafer professional for help claiming and maintaining adequate records to support these eco-friendly purchases. Click here to schedule a FREE 30 minute consultation with one of our tax professionals. We look forward to speaking with you soon.