Tax Credits for Energy Efficiency

As the end of the year approaches, it’s a good time to look ahead and begin preparing for tax season. One of the most beneficial ways to reduce your tax burden is through tax credits for energy efficiency and clean energy projects. These credits not only help lower your taxes but also encourage individuals and businesses to adopt more sustainable practices. Let’s dive into the various tax credits available and how they can benefit you as the end of the year approaches.

Note: this content is provided for informational purposes only. The Nevada Clean Energy Fund does not provide tax guidance. Always consult a tax professional to ensure you understand the implications of tax credits. 

Understanding Energy Efficiency Tax Credits

Tax credits are financial incentives offered by the federal government and many states, designed to encourage taxpayers to invest in energy-efficient technologies. These credits can significantly reduce the cost of home improvements, energy-efficient appliances, and renewable energy systems, allowing you to save both money and energy.

Key Tax Credits to Consider

Residential Energy Efficient Property Credit (Section 25D)

This credit is available for homeowners who install renewable energy systems in their residences. Eligible systems include solar panels, wind turbines, geothermal heat pumps, and fuel cells. As of 2023, you can claim up to 30% of the installation costs for these systems, making it a valuable opportunity to reduce your tax liability.

How To Claim: File Form 5695, Residential Energy Credits Part II with your tax return.

Energy Efficient Home Credit (Section 25C)

Homeowners can take advantage of the Energy Efficient Home Improvement Credit (25C), which offers up to $3,200 annually for qualifying upgrades. This includes up to $2,000 for heat pumps (HVAC and water heaters) and up to $1,200 for weatherization improvements such as doors, windows, insulation, energy audits, and electrical panels.

How to Claim: File IRS Form 5695, Residential Energy Credits, Part II, with your tax return to receive these valuable benefits.

Commercial Building Energy Efficiency Tax Deduction (Section 179D)

Businesses investing in energy-efficient improvements can benefit from a tax deduction of up to $5.00 per square foot for qualifying upgrades. These improvements may include energy-efficient lighting, heating, cooling, and ventilation systems. This deduction can provide significant financial relief for businesses looking to enhance their energy efficiency.

Electric Vehicle Tax Credit

For individuals and businesses purchasing electric vehicles (EVs), there are tax credits available up to $7,500, depending on the origin of certain manufactured components and whether the vehicle is used or new. With the growing emphasis on clean transportation, this credit serves as an excellent incentive for switching to an EV.

How to To Claim: File Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit with your tax return. See more details.

State and Local Incentives

Many states provide additional tax credits and rebates for energy efficiency improvements, which can vary significantly by location. To explore more utility and local incentives in Nevada, visit the Rewiring America Incentive Calculator to find opportunities tailored to your area and you specifically. 

The Importance of Planning Ahead

As the year winds down, now is the perfect time to evaluate your energy efficiency projects and consider making improvements before tax season. Whether it’s upgrading your home’s insulation, installing new energy-efficient windows, or investing in solar panels, acting now can maximize your tax credits and savings. Here are some key tips for year-end energy efficiency planning:

• Review eligible upgrades: Confirm that your energy-efficient improvements, such as solar panels, insulation, or efficient heating systems, qualify for your intended tax credits.
• Gather documentation: Collect receipts, invoices, and manufacturer certifications for completed projects to validate your claims.
• Verify deadlines: Many tax credits apply only to projects completed by December 31, so wrap up unfinished work before year’s end and get ready to include the paperwork in your upcoming tax filing this spring.

Preparing for Tax Season

With tax season around the corner, it’s essential to gather your documentation related to any energy efficiency projects completed throughout the calendar year. Keep track of invoices, receipts, and any certification documentation to ensure you can substantiate your claims. Consulting with a tax professional can also help you navigate the various credits and ensure you’re taking full advantage of available savings.

Tax credits for energy efficiency are a fantastic opportunity for individuals and businesses to lower their tax liability while contributing to a more sustainable future. With several credits available, now is the time to assess your energy efficiency projects and make improvements before year-end.

If you’re looking for more ways to invest in clean energy and support sustainability initiatives in Nevada, consider the Nevada Clean Energy Fund (NCEF). We support projects that advance clean energy solutions, making it easier for everyone to contribute to a greener future.

The NCEF is a nonprofit organization and green bank that provides financial and technical resources to accelerate clean energy growth in the state, reduce energy costs, create jobs, and meaningfully address climate change. NCEF works with communities, local businesses, schools, governments, tribes, utilities, contractors, lenders, and others to increase access to clean energy opportunities, such as renewable energy, energy efficiency, EVs, and energy storage. Learn more about our funding solutions to see how we can help you save on energy efficiency today!