Renovating your home is a good investment. And, smart consumers often wonder if they can stretch the investment further tax deductions. While tax credits for home improvements aren’t always easy to come by, they are more common when your improvements are of an eco-friendly nature. You could say it pays to go green. Here are a few of the 2015 Federal Tax Credits to keep on your radar.
2015 Federal Tax Credits for Green Home Improvements
Geothermal Heat Pumps- These heat pumps operate by collecting heat absorbed by the ground. It’s kind of like an indirect form of solar energy. They can efficiently provide your home with heat, AC and depending upon your model, hot water. In order for you to receive a tax credit for your geothermal heat pump, it must be compliant with the Energy Star program at the time of purchase. Approved tax credits for these pumps also include the cost of installation, so you’re already getting tax deduction help from the get go.
Small Wind Turbines – While a somewhat expensive initial investment (typically upwards of a thousand dollars), you’ll wind up saving on a wind turbine in the long run. Studies have shown that small wind turbines can cover their own cost in 5-10 years. Wind turbines work by converting the kinetic energy in wind into electricity. To qualify for a tax deduction, your small wind turbine may not have a power output of greater than 100 kilowatts. Like with the geothermal heat pumps, you can also get tax credits on the cost of installation of small wind turbines.
Solar Energy Systems – There are savings in solar. Tax deductions are available for installing solar water heaters and/or solar panels at home.
Solar Water Heaters – Comprised of a collector and a storage tank, these heaters run strong for most of the year (save for the winter when you may need to purchase a gas or electric booster to supplement the solar energy and heat the water). To meet the requirements for a tax deduction, your solar water heater must be certified as well as provide at least 50% of your property’s energy. Unfortunately, this tax credit does not count towards pools or hot tubs. It must be used in your home. The installation of solar water heaters is also tax deductible.
Solar Panels – These panels, or PV (photovoltaic) modules, transform sunlight into electricity. Think of them as a network of solar cells woven together like a blanket that captures rays from the sun. Solar panels have an output of between 100-320 watts. To be considered for a tax deduction, solar panels must comply with fire code and electrical code requirements. They must also supply your home with electricity.
Other Major Home Improvements that Qualify for Tax Credits
Major home improvements that substantially increase your property value (i.e. additions like a room or garage), are also likely to qualify for a tax credit, especially on capital gains taxes when you resell your home. The IRS considers a home improvement “major” if it:
- Adds materially to the value of your home
- Prolongs your home’s useful life significantly
- Adapts your home to new uses
Some examples of major improvements include:
- Adding a room, garage, deck, paved driveway, or porch
- Upgrading a roof, water heater, or upgraded wall-to-wall carpeting, tile or wood flooring
- Installing an upgraded central air or heating system
- Rewiring or re-plumbing your home to updated codes
- Adding a built-in pool, gazebo, or hardscaping
- Making your home fully handicap-accessible
Check with your accountant or tax advisor to find out if your planned renovations might qualify. You need to keep good records of the improvements you’ve made. Modern Remodeling can assist you with planning major improvements and documenting their cost.
