Updating your home can save you money on utility bills and make your home more comfortable to live in. They can even be necessary as your existing systems age. But footing the bill for big updates like new heating systems, electrical upgrades, and adding insulation is never going to be fun. Luckily, many energy-saving renovations are tax deductible, making them more affordable in the short term, even as they lower your bills and increase the value of your home in the long run.
Many improvements fall under the Residential Clean Energy Credit
According to the IRS, many renovations that make your home more energy efficient are tax deductible through the Residential Clean Energy Credit. This credit allows you to deduct up to 30% of the cost of qualifying upgrades.
Understanding what qualifies as an improvement versus a repair
The IRS classifies a home upgrade as something that adds value to your home, adapts it to new use, or prolongs its life. This means that unless your new roof adds insulation or some other energy efficiency, it probably doesn’t qualify as an improvement, but as a necessary repair. However, adding a new HVAC system probably does. Painting a room won’t qualify as an upgrade for the IRS, but it’s likely that your new windows do.
Solar panels can earn you a clean energy credit
In most cases, installing solar panels will qualify for a 30% clean energy credit, with no limit on the amount you can claim. Since solar panels can save you up to $1,500 a year on your energy bill, getting a 30% credit is an added bonus. The cost to install solar panels can vary greatly depending on where you live, the size of your home, and the type of solar system you want, so it's important to factor these variables into your total cost estimate.
Solar water heaters can qualify for a 30% credit
A solar water heater qualifies for the 30% clean energy credit as well, and can save you between 50% and 80% on your water heating costs. Installing a solar water heater typically costs between $3,000 and $8,000, so a 30% tax credit is a significant savings.
Wind turbines can save you up to 90% on energy bills and earn you a credit
Small wind turbines can save you between 50% and 90% on your energy bills, and they also qualify for the clean energy tax credit. In addition to saving money on utility bills, a wind turbine acts as a local back-up during power outages. The average cost to install a home turbine is about $2,000, but costs can climb as high as $80,000 depending on the size of your home and the amount of energy you need.
Geothermal heat pumps can save you money in warm weather too
A geothermal heat pump is one of the most efficient heating systems you can choose, and installing on can save you between 30% and 70% on heating and 20% and 50% on cooling costs—an average annual savings of $1,500. Geothermal heat pumps cost about $14,978 on average, but they qualify for the clean energy tax credit, making them a more affordable option than in previous years.
Historic restoration costs can be deducted and make your home more efficient
If you live in an older home that has historic elements, replacing structural components like beams and posts, staircases, and pipes can qualify for a rehabilitation credit, also known as a historic preservation credit. Claiming this type of credit on your taxes can be complicated, so making sure to document all of your expenses on your renovation project is important.
New Windows can land you a $600 credit
Windows that improve insulation can qualify for up to a $600 tax credit. This falls under the energy efficient home improvement credit. Energy star rated windows can save up to $583 on utility costs per year, and cost between $150 and $4,000 to install, so the tax credit can make them an affordable upgrade if you want to improve your home’s energy efficiency.
Biomass stoves are worth up to a $2,000 credit
A biomass stove can qualify for up to a $2,000 energy efficient home improvement credit and can save you about 50% on energy costs if you’re switching from oil heat. A biomass stove costs $2,290 to install on average, making a 30% tax credit a significant savings.
Get a credit for adding insulation
Adding insulation to improve heating and cooling efficiency qualifies for the 30% energy efficient home improvement tax credit, with a maximum of $1,200 deduction. Adding insulation to an existing home can cost between $1.50 and $5.00 per square foot, or an average of $1,820 per home. To insulate an attic, you can expect to pay around $1,500. Adding insulation can save you 20% on your home heating costs.