Eight Energy Saving Home Renovation Projects That Are Tax-Deductible
Updating your home can save you money on your utility bills and make your home more livable. They may even be required as existing systems age. But paying for major upgrades like new heating systems, upgrading electrical wiring, and adding insulation is never going to be fun. Luckily, many energy-saving renovations are tax-deductible, making them more affordable in the short term, although they lower your bills and increase the value of your home in the long run.
Many improvements qualify for the Clean Energy Home Credit.
According to the IRS, many renovations that make your home more energy efficient are tax deductible through the Residential Clean Energy Credit. This credit allows you to deduct up to 30% of the cost ofa qualifying upgrade .
Understanding what qualifies as an improvement versus a renovation
The IRS classifies a home improvement as something that increases the value of your home, adapts it to a new use, or extends its life. This means that unless your new roof comes with additional insulation or some other energy efficiency feature, it will likely not be considered an improvement but a necessary repair. However, installing a new HVAC system will likely help. Painting a room won’t count as an upgrade to the IRS, but it’s likely that your new windows will count as an upgrade.
Solar Panels Can Earn You a Clean Energy Credit
In most cases, installing solar panels will qualify you for a 30% clean energy credit with no limit on the amount you can claim. Since solar panels can save you up to $1,500 a year on your energy bills, getting a 30% credit is an added bonus. The cost of installing solar panels can vary greatly depending on where you live, the size of your home, and the type of solar system you want, so it’s important to factor these variables into your overall cost estimate.
Solar water heaters may qualify for a 30% credit
A solar water heater is also eligible for a 30% clean energy credit and can save you 50% to 80% on water heating costs. Installing a solar water heater typically costs between $3,000 and $8,000, so the 30% tax credit is a significant savings.
Wind turbines can save you up to 90% on your energy bills and earn you a credit.
Small wind turbines can save 50% to 90% of your energy bills and are also eligible for a clean energy tax credit. In addition to saving money on utility bills, a wind turbine acts as a local backup during power outages. The average cost to install a home turbine is around $2,000, but the cost can be as high as $80,000 depending on the size of your home and the amount of energy you need.
Geothermal heat pumps can save money in warm weather too.
A geothermal heat pump is one of the most efficient heating systems you can choose, and installing one can save you 30% to 70% on heating costs and 20% to 50% on cooling costs—an average annual savings of $1,500. Geothermal heat pumps cost an average of about $14,978, but they are eligible for the Clean Energy Tax Credit, making them a more affordable option than in previous years.
Historical restoration costs can be deducted and make your home more efficient.
If you live in an older home that has historic features, replacing structural components such as beams and posts, stairs and pipes may qualify for a rehab loan, also known as a historic preservation loan. This type of tax credit can be difficult to obtain, so it is important to document all of your expenses for your remodeling project.
New Windows Can Give You a $600 Credit
Windows with improved insulation may qualify for a tax credit of up to $600. This qualifies as a home energy efficiency improvement loan. Energy Star-rated windows can save you up to $583 on utilities per year, and installation costs between $150 and $4,000, so the tax credit could make them an affordable upgrade if you’re looking to improve your home’s energy efficiency.
Biomass stoves cost up to $2,000 in credits.
A biomass furnace may qualify for up to $2,000 in home energy efficiency credits and can save you about 50% on energy costs if you’re upgrading from oil heating. Installing a biomass stove costs an average of $2,290, making the 30% tax credit a significant savings.
Get a credit to add insulation
Adding insulation to improve heating and cooling efficiency qualifies for a 30% Home Energy Efficiency Improvement Tax Credit with a deduction of up to $1,200. Adding insulation to an existing home can cost between $1.50 and $5 per square foot, or an average of $1,820 per home. To insulate your attic, you can expect to pay about $1,500. Adding insulation can save 20% on your home heating costs.