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energy star tax credit: What It Is and How It Benefits Homeowners

As energy efficiency becomes increasingly important to consumers and policymakers, initiatives like the energy star tax credit offer benefits to those who prioritize energy-saving upgrades in their homes. The Energy Star program, established by the U.S. Environmental Protection Agency and the Department of Energy, encourages energy efficiency in appliances, electronics and buildings to reduce carbon emissions and decrease energy costs. One benefit of the program is the tax credit available to eligible homeowners.

What is the energy star tax credit?

The energy star tax credit allows homeowners to claim a certain percentage of the cost of eligible energy-saving upgrades made during the year on their federal income tax return. The credit, established in the Energy Policy Act of 2005, was extended through December 31, 2021, by the Consolidated Appropriations Act of 2021. The amount of the credit varies based on the type of upgrade, the cost of the upgrade and the year in which it was made. The maximum total credit amount a homeowner can claim is $500.

What are eligible upgrades?

Not all energy-saving upgrades are eligible for the tax credit. A few of the most popular eligible upgrades include:

- HVAC (heating, ventilation, and air conditioning) systems - Water heaters - Windows, doors, and skylights - Insulation -Roofs - Biomass stoves

To qualify for the credit, the upgrades must meet specific energy efficiency criteria, as outlined on the Energy Star website. For example, HVAC systems must have a Seasonal Energy Efficiency Ratio (SEER) of 16 or higher, and water heaters must have an Energy Factor (EF) of at least 0.82.

How do homeowners claim the credit?

To claim the credit, homeowners must file IRS Form 5695, Residential Energy Credit, with their federal income tax return. The credit is a non-refundable credit, meaning it can only be used to reduce a homeowner's tax liability to zero. If the total credit amount exceeds the homeowner's tax liability, the excess credit cannot be used to increase the homeowner's refund.

What are the benefits of the energy star tax credit?

The energy star tax credit offers several benefits to eligible homeowners. Here are a few of the primary benefits:

- Lower energy bills: By upgrading to more energy-efficient appliances and systems, homeowners can reduce their monthly energy bills. Though the savings may not add up to the full cost of the upgrades, the reduced energy use will offer long-term savings. - Increased property value: An energy-efficient home is more valuable on the real estate market than an inefficient home. By making energy-saving upgrades, homeowners can increase the value of their property. - Lower carbon emissions: By reducing energy use, households can reduce their carbon footprint. According to the EPA, energy use in homes accounts for 17% of total U.S. greenhouse gas emissions. - Limited-time benefits: Though the energy star tax credit has been extended several times, it is set to expire on December 31, 2021. Homeowners who want to take advantage of the credit will need to complete eligible upgrades before the end of the year.

In conclusion, the energy star tax credit offers an opportunity for homeowners to save money, increase the value of their property and reduce their carbon footprint by making eligible energy-saving upgrades. Homeowners should consult the Energy Star website to determine which upgrades are eligible and calculate the potential credit amount before making the investment. As the credit is set to expire at the end of 2021, homeowners who want to take advantage of the benefit should start planning their upgrades as soon as possible.