Whether you’re going solar, driving electric, or boosting your business’ energy efficiency, there are some tax credits designed to help you go green.
In this post, I’ll break down the clean energy tax credits available for homeowners, drivers, and small business owners to help you save money while saving the planet.
What is clean energy?
The IRS and the government often use the term “clean energy,” but you may also be used to hearing about green energy or renewable energy instead. No matter what it’s called, these terms typically refer to energy that comes from solar, wind, hydroelectric, or geothermal options.
What are tax credits?
In this post, I’m talking about tax credits, which are different from deductions or rebates, so I want to be sure and explain the differences before we dive in.
First, unlike a tax deduction, which reduces your taxable income, a tax credit is an amount that can be subtracted from your total tax bill. If the tax credit is a refundable credit, it can actually result in an increased refund. (Spoiler alert: None of the clean energy credits discussed in this post are refundable credits.)
Additionally, a tax rebate is also sometimes confused with a tax refund. While they are similar, a tax rebate is generally an amount given throughout the year and not just by claiming it on your tax return. In fact, a rebate is often given out relatively soon after the purchase that qualifies for the rebate is made.
One thing to note is that you can usually claim tax deductions, tax credits, and tax rebates. In other words, you don’t have to just pick one. In fact, you should claim as many as you can!
Another thing to keep in mind is that your state or local government may offer different or more deductions, credits, or rebates than the IRS, so make sure you’re checking that avenue for tax savings as well.
What energy tax credits are available for home improvements?
Residential Clean Energy Credit
This Residential Clean Energy Credit lets you claim a nonrefundable credit for a percentage of your home improvement expenses for qualified renewable energy systems. You can take a credit for up to 30% of the cost to install things like solar panels, wind turbines, geothermal heat pumps, fuel cells, or battery storage technology.
You must take the credit in the tax year that the equipment was installed (not just purchased), but there is not an annual or lifetime limit to this credit, and you can take the credit in multiple years as long as you installed additional eligible systems in those years.
You can claim this credit for a home you live in “most of the time,” no matter if you own or rent the home. However, you can’t claim the credit if you’re a landlord or if you don’t live or reside in the home at least part-time. You also can’t claim the credit if you only use the home for business purposes more than 20% of the time.
This credit applies to systems installed between 2022 and 2032. After 2032, the credit percentage begins to phase down to 26% in 2033 and 22% in 2034. To claim this credit, you’ll need to file IRS Form 5695 with your annual income tax return.
Energy Efficient Home Improvement Credit
The Energy Efficient Home Improvement Credit is a nonrefundable credit that allows you to claim 30% of qualified energy efficient improvements that you made to an existing home after January 1, 2023 and before January 1, 2033.
However, there are amount limits to this credit. You can claim a maximum of:
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$1,200 per year for energy efficient home improvements, which may include limits for these items:
- $250 per door for energy efficient exterior doors with a $500 maximum,
- $600 for energy efficient windows or skylights, and
- $150 for a home energy audit.
- $2,000 per year for installing qualified energy efficient systems like a heat pump, water heater, or biomass boiler.
You must take the credit in the tax year that the equipment was installed, and you can take the credit in multiple years as long as you installed additional eligible improvements.
Typically, you can claim this credit for a home that is your primary residence, whether you own or rent. However, you can’t claim the credit if you’re a landlord or if you don’t live in the home at least part-time or use the home solely for business purposes more than 20% of the time.
Starting in 2025, the product or system must be made by a qualified manufacturer, and you’ll need to report the product’s PIN on your tax return. To claim this credit, file IRS Form 5695.
What energy tax credits are available for electric cars?
If you’re purchasing a new or used plug-in electric vehicle or fuel cell vehicle, there are some clean vehicle tax credits that could be available to you.
For new qualifying vehicles purchased between 2023 and 2032, a nonrefundable tax credit of up to $7,500 is available. For previously-owned qualifying vehicles, you may qualify for a nonrefundable credit of up to $4,000 or 30% of the vehicle’s sale price, whichever is less.
There are income limits for both credits. If your modified adjusted gross income exceeds a certain amount, you may not be eligible.
To claim a clean vehicle credit, you’ll file Form 8936 with your tax return.
What energy tax credits are available for business owners?
While there are a variety of clean energy tax incentives for businesses, most apply to larger businesses like manufacturers, fleets, or fuel producers.
For typical small businesses, 2 tax credits are most applicable:
Commercial Clean Vehicle Credit
The Commercial Clean Vehicle Credit offers a nonrefundable credit of up to $7,500 for small vehicles and up to $40,000 for large vehicles like buses or semis.
Qualifying vehicles must be made by certain manufacturers and meet plug-in electric or fuel cell criteria.
Partnerships and S-Corporations file Form 8936. Other business types use line 1y, Part III, of Form 3800.
Clean Electricity Investment Credit
The Clean Electricity Investment Credit applies to clean energy systems installed starting in 2025, offering credits from 6% to 70% depending on factors like location and labor requirements.
To claim it, file Form 3468 with your business return.
Whether you’re a small business owner or homeowner, you don’t want to miss out on tax credits that can reduce your tax bill. If you’re unsure which credits or deductions you qualify for, reach out to an accountant who can help you navigate your taxes.
