Home Energy Efficiency Improvement

Renewable Energy Tax Credit: How To Claim It in 2020

Good news — the IRS has made it cost-efficient to go energy-efficient. If you made your home more energy efficient in the past year, you may qualify for the renewable energy tax credit on your 2020 federal income tax return.

Not sure if you qualify? Here’s everything you need to know about home energy tax credits.

Residential Renewable Energy Tax Credit

How do I qualify?

To qualify, you must have one or more of the following in your primary residence or secondary home:

  • Solar panels.
  • Solar-powered water heaters. To qualify you for the tax credit, at least half of your home’s water-heating capacity must be solar. The water must be used in your home — solar heating for swimming pools and hot tubs don’t count.
  • Wind turbines. However, they only qualify if they generate up to 100 kilowatts of electricity.
  • Geothermal heat pumps (they must meet federal Energy Star guidelines to qualify).
  • Fuel cells that generate at least 0.5 kilowatts of power for a home using a renewable resource, like hydrogen. Unlike the others, this only qualifies you for a tax credit if installed in your principal residence.

How long will this apply?

If this is the first you’re hearing of this tax credit, you may be tempted to get on the renewable energy bandwagon in the coming year. But will the tax credit still apply if you start now? Fortunately, yes: the credit is good through 2021.

What do I get?

The Residential Renewable Energy Tax Credit was equal to 30% of the renewable energy system cost (including installation) from 2016-2019.  This includes commercial and residential systems. For 2020, this credit can deduct 26% of the renewable energy system cost from your taxes. For 2021, this credit can deduct 22% of the renewable energy system cost from your taxes. For solar, wind and geothermal equipment, there is no upper limit on the amount of the credit. However, there is a maximum tax credit for fuel cells: $500 for each half-kilowatt of power capacity, or $1000 for each kilowatt.


Getting started

The Residential Renewable Energy Tax Credit probably isn’t the only credit that you qualify for. There is a slew of credits and deductions to help lower your taxable income and reduce the taxes you’ll pay. In fact, there are so many that getting started can feel dizzying.

If you need help, consider enlisting the help of tax preparation experts. Compare tax prep solutions here to get the most out of your tax season!