Green upgrades made in 2021? Don’t miss these tax breaks

Many Americans have woven green practices into their daily lives — from recycling to going paperless and even cutting back on meat consumption.

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Switching to clean energy or purchasing an electric vehicle are additional ways to go green, but large-scale upgrades often come with big price tags. Several existing tax credits can help offset the cost of the commitment, but it pays to know the details.

Whether you’re looking for some upgrades this year or wondering if changes you’ve made in 2021 count toward a tax credit, here’s a quick start guide to current federal tax incentives for energy efficiency and other green upgrades.

Plug-in credit for electric cars

Upgrading to an electric car comes with a number of benefits. Aside from lowering your carbon footprint, electric vehicles often require less maintenance and use less fuel than their gas-powered counterparts.

Your purchase can even count toward a federal tax credit of up to $7,500. The catch? You need to keep an eye on which vehicles are eligible and for how many.

“What you’ll discover is that high-performing all-electric vehicles get the full benefit of the credit,” said Shannon Christensen, attorney and editor for Thomson Reuters Tax and Accounting, based in Lindstrom, Minnesota.

Hybrid models, on the other hand, are often eligible for a smaller amount.

Here’s a look at some fine print:

The credit is worth $2,500 to $7,500, depending on the car’s battery capacity. Credits are reduced and eventually phased out after a manufacturer has sold 200,000 eligible vehicles. You must own the car. Used or leased cars are not eligible. The car must weigh less than 14,000 pounds. The credit is non-refundable; it may reduce your tax bill to zero, but it will not result in a refund.

Don’t forget to look for additional state and local incentives, says Gena Jones, an attorney and board-certified public accountant based in Flossmoor, Illinois. For example, California’s Clean Air Vehicle Program provides access to pool lanes for select electric vehicles. New Yorkers, on the other hand, may qualify for a state-level discount of up to $2,000 on top of the federal tax credit.

» Interested in building a more ethical portfolio? Think ESG investing.

Residential Energy Loans

Green home tax credits come in two categories: one for renewable energy systems and another for energy efficiency.

Taxpayers who upgrade their homes to renewable energy systems, such as solar panels or geothermal heat pumps, may be eligible for a non-refundable tax credit of up to 26% of the cost for installations installed in 2020 to 2022. After that, the percentage goes up to 22% for systems installed in 2023.

Switching to an alternative energy system can also help you save on utilities and even increase the value of your home.

But keep in mind that certain subsidies — such as a kickback you receive from a utility company, for example — must be included as income when you file your tax return, Christensen says. Otherwise, you must subtract the check amount from the total expenses you declare before calculating your credit.

If you’re wondering about minor changes to the commitment, the IRS offers some relief there, too. By adding or upgrading insulation to energy-efficient doors or windows in your home, you may qualify for a non-refundable tax credit of up to $500. The caveat? This credit has not been extended until 2022, so currently only qualifying upgrades in 2021 will count.

» Need help choosing the right software? Discover the best tax preparation services.

Before you archive

If you think you might qualify for a federal tax incentive this year, be sure to give your tax preparer all the necessary receipts and certificates to redeem the credit you’re eyeing, Jones says. Missing any of the paperwork can jeopardize your chances of eligibility.

And if you’re not quite ready to commit to an electric vehicle or solar panels, make sure you keep your eye on the fate of President Biden’s Build Back Better Act in the coming months. While it’s currently stalled in Congress, the bill has several ambitious clean energy plans, including generous expansions and improvements to the existing appropriations above.

This article was written by NerdWallet and originally published by The Associated Press.

Sabrina Parys writes for NerdWallet. Email: sparys@nerdwallet.com.

The article Green upgrades made in 2021? Don’t miss these tax credits originally on NerdWallet.


This post Green upgrades made in 2021? Don’t miss these tax breaks was original published at “https://www.entrepreneur.com/article/421631”

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