The Residential Renewable Energy Tax Credit (RRETC) is a useful tool which was set up and updated by Congress through several different legislative actions throughout the 2000s. It provides some fantastic federal income tax benefits to provide incentives for American taxpayers to install environmentally-friendly renewable energy systems in their homes.
Below we have detailed four steps you should follow in order to benefit from the RRETC:
1) Be aware of deadlines
2016 is the final year to install certain types of renewable energy equipment and reap the benefits of the RRETC. For example, if you want to utilize the tax credit for installing small wind energy equipment, you must act this year. Others, such as solar electric equipment, will qualify for the current tax credit rate of 30% through 2019, and decreasing tax credit rates every year until 2022, after which the tax credit will no longer apply barring any legislative changes. Be aware of the deadlines and make sure to act fast if the type of renewable energy equipment you want to install has a tax credit expiration at the end of this year.
2) Purchase qualifying renewable energy equipment
Next, you must seek out and purchase renewable energy equipment that qualifies for the RRETC. There is a wide range of types of renewable energy which can afford you significant tax benefits, such as solar-electric panels which allow you to run some or all of your residence’s electricity from the energy provided by the sun’s rays. Here are a few of your potential options:
- Solar-electric
- Solar-water heater
- Fuel cells
- Small wind energy
- Geothermal heat pumps
It does matter which type of equipment you purchase—not all solar panels are created equal—but most sellers trumpet the fact that their equipment qualifies for the RRETC. If you are considering purchasing equipment, be sure to ask the manufacturer whether or not that equipment qualifies.
3) Install
After purchasing the proper equipment, the next step is to actually have it completely installed and placed into service at your residence. As the name implies, the Residential Renewable Energy Tax Credit only applies if the renewable energy equipment is installed at your residence, but it does not have to be your primary residence. You could still qualify for the credit if you were to install certain qualifying equipment at a vacation home or some other residence you own.
4) Reap the tax benefits
The tax credit for installing renewable energy equipment is extremely significant. As a credit, the RRETC provides a 1:1 reduction of your total income tax liability. The exact amount of the credit will vary based on the type of renewable energy equipment you install. For example, in 2016 if you were to install solar electric panels, you would be able to claim a tax credit worth 30% of the cost of the “Net System Price.”
The net system price is the cost of equipment and labor minus any promotions or rebates you were granted, including any state tax incentives offered for installing the renewable energy source. For solar electric and solar water heating equipment, you will be able to claim a 30% tax credit until the end of 2019, a 26% credit in 2020, and a 22% tax credit in 2021.
You should also be aware that the IRS allows you to carry over your credit if you are unable to utilize the full amount of the credit in the year in which you installed the equipment.
If you have questions about the RRETC, are in need of advisement regarding your eligibility for the RRETC, or you’d like to figure out its implications for your tax returns, please do not hesitate to give me a call today!
Written by E. Morgan Maxwell
Since beginning his own firm, Mr. Maxwell has continued a tax-law oriented practice encompassing a wide range of transactions, planning and dispute resolution. His dispute resolution experience includes involvement at all levels of the Internal Revenue Service (Examinations, Appeals, Collections, Office of Professional Responsibility, the U.S. Tax Court), the Pennsylvania Department of Revenue, the Tax Litigation Section of the Pennsylvania Attorney General’s Office, Pennsylvania Commonwealth Court, Common Pleas Court and local taxing jurisdictions in southeastern Pennsylvania.
