The time to file your tax return is approaching. Remember that it pertains to the 2024 tax year, and if you haven’t submitted it yet, you’re still in time to take advantage of a tax credit that few people are aware of but can save you $1,500. The Energy Efficient Home Improvement Tax Credit allows you to deduct a portion of the cost of home modifications (particularly the installation of water heaters).
Although many taxpayers are aware of child and education tax deductions, thousands of people who potentially qualify for the energy credit are unaware of them. Don’t become one of them. We’ll tell you all you need to know to claim and receive the $1,500 so it doesn’t go unclaimed.
What is this credit?
The Energy Efficient Home Improvement Tax Credit is an important benefit for homeowners. It’s especially advantageous for people who spend a substantial portion of their income on energy costs, as well as taxpayers who live in areas with high temperatures and frequently need to use heat pumps in the winter or air conditioning in the summer. For example, Hawaii has one of the highest energy costs in the US, whereas North Dakota appears to spend the least on electricity.
Why does this credit exist?
This initiative aims to assist American homes reduce their energy consumption by compensating those who replace their old systems with more modern and efficient models. In this case, the emphasis is on heat pump water heaters (HPWH), which are up to four times more efficient than traditional types.
These appliances can account for up to 20% of the monthly electricity bill, so replacing them not only saves money on the bill but also provides a direct deduction on your tax return.
How do I apply for it?
When submitting your tax returns, use Form 5695, Residential Energy Credits Part II. Remember that you must apply for this credit during the tax year in which the water heater was installed (not the year it was purchased), or it will not count and cannot be deducted from your taxes.
Who is qualified for this credit?
- To apply for this credit, you must fulfil many essential requirements:
- The heater must be installed in a residence in the United States after January 1, 2023.
- The property must be an existing residence (no new building).
- This must be your primary residence.
- Of course, the unit must meet the maximum energy efficiency criteria established by the CEE.
What happens if you don’t file on time?
If you won’t be able to file your tax return on time, request an automatic extension; however, you must do so soon because time is running out. You can also use computerised tools designed by the IRS to help you file (for free) if you match specific criteria.
Remember that even if you request an extension, if you owe the government money, you must pay it by April 15 of this year, or face a late payment penalty.
Take advantage of all of the IRS’s expense-cutting opportunities. As you can see, tax season isn’t all horrible!
