Tax Saving with Alternative Energy Credits for Residential Property

By John T. Murray, CPA, Partner

Tax Saving with Alternative Energy Credits for Residential Property

A large part of the debate in Congress over the potential $3.5 trillion infrastructure, climate change, and green energy bill concerns how much to spend on climate change and green energy. Despite this debate, our tax code currently contains a number of green energy provisions for residential property.

Summary of Residential Energy Efficient Property Credit

Are you considering adding an alternative energy system in your home? If so, the Residential Energy Efficient Property (REEP) Credit offers a certain percentage of your cost back in the form of an income tax credit which can be used to offset other federal taxes you may owe.

Qualified energy saving property eligible for the REEP credit include the following:

  • Qualified solar electric energy
  • Qualified solar water heating property (excluding swimming pool or hot tub equipment).
  • Qualified fuel cell property.
  • Qualified small wind energy
  • Qualified geothermal heat pump
  • Qualified biomass fuel

To qualify, these systems must be installed in your residence, which must be located in the U.S.

Residential Property Credit Timing

Initially, the available credit was equal to 30% of the cost of the property. That percentage has been phased down in recent years, but there is still a great opportunity to have a portion of the cost of an energy efficient upgrade subsidized by the government.

For property placed in service between now and the end of 2022, the credit is equal to 26% of your cost of the equipment. If you wait until 2023, the allowable credit goes down to 22% of your cost. No credit is allowed for property placed in service after 2023. Congress has extended these phase outs in the past, however.

An additional limit does apply to the credit for qualified fuel cell property. The credit for this type of property is limited to $500 for each 0.5 kilowatt of capacity and is only available if it’s installed in your primary residence.

In addition to the federal credit, many state and local governments offer incentives that can be tacked on as well and must be considered when deciding whether to pursue an alternative energy property acquisition.

Questions on this or other individual tax saving opportunities? Contact your Keiter Opportunity Advisor or Email | Call: 804.747.0000

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About the Author

John T. Murray

John T. Murray, CPA, Partner

John is a member of the Firm’s Financial Services and Mergers & Acquisitions and Technology industry teams with over 20 years of experience in both the private and public accounting practice areas. He applies his experience to provide insights and identify opportunities for closely-held businesses in the real estate, healthcare, private equity, and government contracting industries. He provides ongoing budgeting, forecasting, cash management, and compensation planning for many of his clients. John also applies his expertise and knowledge in structuring transactions and reviewing proposed acquisitions in order to minimize the tax consequences for his clients that are located throughout the US as well as internationally.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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