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10 Worthwhile Energy-efficient Tax Breaks

        Money | Taxes

Buying turbines and solar panels for your U.S. abode? You could be in for one heck of a tax break.
Buying turbines and solar panels for your U.S. abode? You could be in for one heck of a tax break.
vencavolrab/iStock/Thinkstock

Sorry, everybody, but we've got to start with a bummer of a warning: It used to be -- in the good old days of 2013 -- that we had a bigger list of energy-efficient deductions from which to choose. Install some insulation? There was a deduction for that. Own a hybrid? Write off some of that fuel-saving car on your taxes! Alas, over the past few years, several big energy credits have gone the way of the dodo.

But don't assume you've got nothing to gain from trying to go greener. While a few credits have expired, there are still some ways to reap tax benefits -- and yes, even credits -- on your current taxes. Let's start by examining a few of the systems you can install for a healthy tax break.

10: Heat Pumps

Let's jump right into some ways that your tax liability can benefit from energy upgrades. There are actually four different systems that will give you a tax credit, and the good news is very good: You can take the credit for each of them. That's right: 30 percent off the cost of each new or upgraded system. (And we'll see later how that deal is even sweeter, the more we dig into it.)

First up: geothermal heat pumps. Instead of using the air outside to heat or cool the house (and sometimes water), these little guys use the warmth of the earth to control temperatures in your residence. Many Energy Star qualified products are going to meet the requirements to get that sweet heat written off [source: Energy Star Tax].

9: Solar Panels

Want to cut your hot water costs in half while saving big money on your tax return? Upgrading your home to a solar water heating system also gets that 30 percent credit for energy-efficient systems, and it has the much-needed bonus of cutting carbon dioxide emissions in half [source: Energy Star Money]. But don't let the sun get off with such light duties (har!). You can take a whole other credit for installing solar panels for electricity.

By putting in photovoltaic or solar panels on your property, you are free to take another 30 percent of the cost as a credit. They're used to provide electricity for the home, and -- like the other products -- they must be placed in service before 2016 for you to get the credit.

8: Turbines

Who doesn't want to tilt at a windmill every once in a while? Keeps the imagination sharp, after all. But it's a lot more fun if you have a real one to spar with, so why not consider adding a wind turbine to the old homestead? You'll be rewarded handsomely in the form of yet another 30 percent credit of the cost.

Wind turbines are kind of used like solar electricity panels, in that they're converting energy to electricity. The small wind turbines you can install on your property use the wind's kinetic energy to produce electricity for your home. One thing to remember: It can't have a nameplate capacity (or maximum capacity) of more than 100 kilowatts to be considered a qualifying technology [source: Energy Star Wind].

7: Fuel Cells

Fuel cells, we'll see, qualify a little differently for energy efficiency deductions, but before we begin slashing our tax bills, let's have a word about how fuel cells work. Basically, these systems convert fuel into electricity using electrochemistry. (If you want to know a lot more about fuel cells, go for it.) So in this case, fuel cell technology is another way of getting more energy-efficient electricity into your home.

In the case of fuel cell systems, you can either take 30 percent of the cost (just like the other three) or calculate the kilowatt capacity for a credit. (You get $1,000 per kilowatt, as long as you have at least a 0.5-kilowatt capacity and at least 30 percent electricity-only generation [source: IRS 5695].) Unfortunately, the IRS will only let you take whichever option is the lesser amount.

6: Home Caveats

One other difference between fuel cells and the other three types of energy systems: You're only going to be able to apply the tax credit to fuel cells if you're installing the system in your main home. The IRS considers your main home to be where you live most of the time -- no summer places or winter getaways.

But wind turbines, solar systems and geothermal heating? You can apply the credits whether you install them in your main home or your other fancy lodges (or tin shacks, for that matter). Do know that if you install fuel cells in a home you share with someone other than a married spouse, you will both have to calculate your individual credit, so long as you're both contributing to the cost of the system [source: IRS 5695].


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