How to Make the Most of Energy Efficiency Tax Credits in 2024
From solar panels to EVs and insulation, there's a lot of money on the table this tax season.
If you installed solar panels on your home in 2023, now is the time to claim that big federal tax credit.
Tax season: It's certainly not a time of year most Americans look forward to.
But it might be a reason to celebrate if you made certain energy-related improvements to your home last year -- like adding solar panels. That's because those home energy upgrades qualify for generous tax credits that could save you thousands of dollars.
Maybe you already knew about the credits, but there's more to learn about how to get the most out of them. Here's your guide to home energy tax credits in 2024.
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How do I claim tax credits for energy improvements?
This depends on which specific credit you're claiming, and how you're filing your taxes. Let's break it down by type of home energy technology.
Claiming tax credits for solar panels
Installing solar panels on your home likely qualifies you for the residential clean energy credit from the federal government. This covers up to 30% of the cost of solar panel installations done between 2022 and 2032.
To claim this credit, you'll need to file IRS Form 5695. If you're using an accountant, they can help you fill out the form. If you're using a software like TurboTax, you might not have to fill out the form directly, but the program will still be able to claim the credit for you, according to Mike Kraten, director of accounting program initiatives at the University of Houston C.T. Bauer College of Business.
Kraten recommends that if you are using tax software, however, you should double-check the IRS website and make sure you're getting the right credit that you qualify for.
In addition to the main solar credit, you might also qualify for the energy efficient home improvement credit, which covers home energy audits, among other things. So if your solar installation came with a home energy audit, Kraten says you should look into claiming this second credit, which uses the same IRS Form 5695.
Claiming tax credits for electric vehicles
The other big tax credit you should know about this year applies to electric vehicles.
The federal government's $7,500 tax break for EVs only applies to certain models (see the full list here), but it's never been easier to claim. Some dealerships are now allowed to take the discount off the sticker price of the car, meaning customers don't have to file any paperwork after the fact.
If you didn't receive the discount at the point of sale, you can claim the tax credit by filing Form 8936 with your tax return. Make sure your EV meets the requirements for a full or partial tax credit by checking fueleconomy.gov, the official government source for fuel economy information, which maintains a running list of qualified EVs.
You'll also want to make sure you meet the income requirements for the EV tax credit, which are $300,000 a year for married couples, $225,000 for heads of households, and $150,000 for all others.
Did you buy an electric vehicle, like a Kia EV6, in 2023? An important question to ask yourself when you file your taxes.
Claiming tax credits for home energy improvements
Lots of other home energy upgrades, beyond solar, qualify for tax credits this year.
The residential clean energy credit also covers solar water heaters, wind turbines, geothermal heat pumps, fuel cells and battery storage technology.
The energy efficient home improvement credit covers lots of items, including windows and doors, insulation, central A/C, biomass stoves and electric heat pumps.
For any of these improvements, under either tax credit, you'll need the IRS Form 5695. Some improvements might qualify for both credits -- for example, if your solar company provided a home energy audit before installing the panels, you could claim the audit as part of the energy efficiency credit, according to Kraten.
"It's more of an art than it is a science," he said.
Kraten suggests taking time to review the IRS website, which lists everything that qualifies for the credits. You might be surprised by what's there, and it might even motivate you to make certain home energy upgrades you didn't realize qualified for the credit, Kraten said.
What documents do you need to claim energy tax credits?
The documentation required for these tax breaks is pretty simple.
In addition to filing that Form 5695 I keep mentioning, you'll also need to file proof of purchase for any given home energy improvement. Basically, this is a receipt or a contract from whoever installed the technology.
You could also file your home energy audit if you have one, as proof that the energy improvement was "necessary," but Kraten said that's not required.
He likened it to a health savings account, where you're required to include receipts from each qualifying purchase, but you don't need to prove the medical necessity of each expense.
What you should know for next year
Even if you didn't install any home energy improvements in 2023, it's worth understanding how these tax credits work -- especially if you're planning some upgrades in 2024.
Again, Kraten recommends reviewing the full list of qualifying technologies, which could inspire your home improvement plans.
"It's not just heating and powering the home, it's also heating and powering any other equipment that can be connected to the home," Kraten said of the wide array of improvements covered by the credits.
If you do go forward with any projects, save all of your receipts and contracts, which you'll need when filing for tax credits next year.
And if you're not sure about what exactly you qualify for, it's never a bad idea to consult a certified accountant for some advice.
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