How to Make Your Home Eco-Friendly and Earn Tax Credits

wood fenced yard

As the world faces extreme weather conditions like droughts, superstorms, and heavy flooding, it has become clear that it is the responsibility of everyone everywhere to contribute to efforts to mitigate climate change. One of the things with the most impact is housing. Houses last for several decades, and their collective environmental footprint is massive. If every family, however, takes the responsibility to make their home green, the resulting collective effect will likewise be immense.

Every aspect of a residential property can be made sustainable. For instance, composite wood fencing panels are made of reclaimed wood sawdust and recycled plastic in an environmentally safe manufacturing process, therefore minimizing waste while not using up natural resources. To further motivate people to make their homes sustainable, the government has several incentive programs.

Tax Credits for New Green Homes

Builders of new energy-efficient homes built from December 31, 2017 to December 31, 2021 can get tax credits up to $2,000. To qualify, the home must have 50 percent more heating and cooling savings compared to the 2006 International Energy Conservation Code (IECC) and its extensions. Of these savings, 20 percent must be from energy improvements in the building’s foundation, walls, and roof.

Builders of manufactured homes can claim the same credit if the home meets the same energy-saving requirements. It must also meet national standards for manufactured home construction and safety.

If the manufactured home achieves only 30 percent more heating and cooling savings compared to the 2006 IECC and its extensions, or if the manufactured home meets the requirements of Energy Star, the builder can avail of tax credits worth $1,000. Of the home’s energy savings, a third must be from energy improvements in the building’s foundation, walls, and roof.

Tax Credits to Improve Existing Homes

Separately, if a house already exists, the homeowner can still earn tax credits by installing improvements for energy efficiency. The tax credit is ten percent of the cost, excluding installation, with a cap of $500. Installing a metal or asphalt roof that has an Energy Star certification earns this credit. The metal roof is coated with special pigments and the asphalt roof is coated with cooling granules that deflect solar rays. These decrease the roof temperature by as much as 100 degrees Fahrenheit.

Installing insulation also earns a tax credit. Qualified are bulk insulation types like pour-in-place insulation, expanding spray, blow-in fibers, rolls, batts, and rigid boards. Air sealing products that have a manufacturers’ certification statement also qualify. Replacing or installing a new door, skylight, or window earns a tax credit if the installed product has an Energy Star certification. The credit for windows has a cap of $200, though.

Exterior renovation of a modern house

Tax Credits for Renewable Energy

Homeowners can earn further tax credits by replacing or supplementing traditional energy sources with renewable energy sources. For renewable energy systems in use by December 31, 2019, the tax credit is 30 percent of the cost, including installation. For systems in use since January 1, 2020 and to be set up until December 31, 2022, the tax credit is 26 percent of the cost, including installation. For systems to be set up from January 1, 2023 to December 31, 2023, the tax credit is 22 percent of the cost, including installation.

Solar panels or photovoltaic systems use solar cells to convert sunlight into electricity. To qualify for the tax credit, the residential property must source at least 50 percent of its energy needs from the solar panel system. The system must pass the local fire and electrical codes. It is also required to have a certification from the Solar Rating and Certification Corporation (SRCC) or a counterpart assigned by the state government where the property is located.

Fuel cells use clean hydrogen as an alternative to fossil fuels. To qualify, the fuel cell must have an electricity-generating efficiency of more than 30 percent. The tax credit has a cap of $500 per half-kilowatt (kW) of capacity. Geothermal heat pumps generate energy from the ground and air for heating, air conditioning, and water heaters. To qualify, it must pass Energy Star requirements at the time of acquisition.

A wind turbine converts kinetic energy into electricity. To qualify for residential use, it must generate 100 kW or less of electricity. Biomass stoves heat homes or heat water using biomass fuel such as wood waste, wood residues, dried plants, grass, crop waste, and fiber. To qualify, the thermal energy efficiency rating of the biomass heating system must be at least 75 percent.

Tax Credits for Primary Residence Equipment

Homeowners can acquire other Energy Star certified equipment with corresponding tax credits. Air source heat pumps and central air conditioning systems have a tax credit of $300 each. Water heaters using electricity, gas, propane, or oil have a tax credit of $300 provided they have at least 90 percent thermal efficiency. Hot water boilers, furnaces, and fans using gas, propane, or oil have a tax credit of $150 each. A furnace advanced main circulating fan has a tax credit of $50 provided it uses two percent or less of energy from the furnace.

With these financial incentives, it becomes more affordable to convert any house into a green home. With the added savings in energy costs, this becomes a decision that is not only environmentally friendly but budget-friendly as well.

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