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Renewable energy and taxes:  Here’s what you should know

wind energy
(© Rafa Irusta – stock.adobe.com)

As we all know, the use of renewable energy is promoted throughout the world. Most of us also know that buying and installing that type of system in our homes is also quite expensive. They surely come with weighty benefits and advantages, but the good old reliable gas systems are clearly much more convenient.

The main result of this difference is the fact that users of renewable energy systems enjoy certain special tax benefits – as well as benefiting the environment. Just as various countries are now offering citizens ways to fund the purchase of all-electric vehicles, some also incentivize the use of the aforementioned renewable energy systems.

But where do solar panels, windmills, watermills and so forth stand when it comes to taxes? Let’s find out.

The Consolidated Appropriations Act

This act, established in 2021, is providing owners of the systems in question with various tax credits. As such, systems that were installed up until the end of 2019 enjoy a 30 percent tax credit, while those that will be installed until 2023 enjoy a benefit of 26 percent.

What does this mean?

  • Well, for primary residences, one would enjoy 10 percent of the cost (up to $500) as a tax credit for their renewable energy system.
  • However, the best part is that new home builders might be eligible for up to $2000 in tax credit if they plan to include energy-efficient systems in their new homes.

To some, these tax credits might not seem like a huge amount. However, they do create an incentive for people to install renewable energy systems in their homes. Even if they save $100, they are more likely to do it, compared to if they had to do everything alone.

The tax credits

As you can see, the base of the system consists of tax credits offered to homeowners as well as to developers, manufacturers, and installers of the type of systems mentioned above. How do these tax credits work?

Well, most of them are nonrefundable credits. This means that, when your tax liability is exceeded by the tax credit, no refunds are issued. However, the tax credits related to renewable energy systems can be carried over to one’s next tax year.

But we have to keep in mind that there are as many tax credits as there are types of renewable energy. If you’re unsure whether you classify for a tax credit or not, you should reach out to a tax professional.

Those living in California have it extremely easy, as the state produces roughly 95 percent of its total energy in renewable ways. As such, a California tax lawyer knows everything about energy taxes and such matters.

The bottom line

So, what should you know about renewable energy and taxes?

Everybody out there who is thinking about installing some planet-friendly energy systems should know that first of all, the government helps with funding. Even if not major, the funds offered by the state are enough to install minimal systems and to help you start enjoying a new tax credit of 26 percent. This is quite generous, especially given that such systems don’t cost you huge sums in the long run.

Story by Gary Johnson