These credits apply to improvements like solar panels, wind turbines, fuel cells, geothermal heat pumps, and solar-powered water heaters. All these credits were valid through the 2016 tax year. The solar credits were extended to 2019 and then are available on a reduced basis until 2021.
Green energy systems may also be eligible for tax credits on second and vacation homes. Fuel cells are the exception to this.
The 30% tax credit applies to both labor and installation costs. There are no maximum limits on the amount refunded, other than for fuel cells. For example, if you spend $20,000 installing new solar panels, you would get a credit for $6,000.
You must apply for this tax credit during the tax year that you have them installed. You must also submit a Manufacturer Certification Statement. In addition, you should visit the IRS website for energy tax credits for further information.
Exclusion on the Sale of Your Home
There’s also a home sale exemption to consider. A qualified seller can avoid paying any capital gains tax on their profits when they sell their primary residence. This applies to a profit of $250,000 for a single taxpayer and $500,000 for a married couple filing jointly.
The reasoning behind this is that renovations will reduce the amount of profit you have to declare when you sell your home. So even if you do find yourself paying capital gains tax, the home sale exclusion and your renovations will reduce the amount of tax you pay.
Tax season is going to be here before you know it. Therefore, now is the time to ensure that you have completed all of the energy-efficient upgrades to your home.
Having an energy-efficient home will save money on your bills and pay less money in taxes. Learn how you claim home energy tax credits if you qualify.
Non-Business Energy Property Credit
You can get a 30% credit for your energy-efficient improvements. Things that fall under this category include:
Electric heat pumps
Central air conditioners
Natural gas, propane, or oil water heaters
Qualified oil furnaces
Qualified oil hot water boilers
Some air-circulating fans
Insulation that reduces heat loss or gains
Exterior windows, skylights, or doors
Storm windows and doors
Metal and asphalt roofs that reduce heat loss or gain
Residential Energy Efficient Property Credit
This energy tax credit will allow you to have a 30% credit for the alternative energy equipment that you have installed. Some of the things included are as follows:
Solar electric property
Solar water heating property
Fuel cell property
Small wind energy property
Geothermal heat pump property
Most of the items here do not have a limit. However, the fuel cell property credit is limited to $500 for each one-half kilowatt of capacity of the property.
How to Claim the Energy Tax Credit
Make sure that you take advantage of these two credits if you are eligible. Your home does not have to be your main residence; it only has to be in the US. To apply for the Residential Energy Property Credit, complete Form 5695 and attach it to your Form 1040.
The First-Time Homebuyer Act of 2021 establishes a federal tax credit for first-time homebuyers. It’s not a loan you have to pay back, nor is it a cash gift like the Downpayment Toward Equity Act. The tax credit is equivalent to 10% of the purchase price of your home and cannot exceed $15,000 in 2021.
US politicians presented the First-Time Homebuyer Act of 2021 on April 28, 2021. The measure amends the IRS tax law to provide up to $15,000 in federal tax credits to first-time home purchasers.
The program applies to all new residences bought after January 1, 2021. After that, there is no set expiry date, and the $15,000 tax credit may become permanent.
If enacted into law, qualifying first-time home purchasers will get their tax credit immediately, with no action required other than the submission of a tax form. Furthermore, if a homeowner’s tax payment is less than $15,000, the excess amount will be paid by direct deposit.
Although the federal first-time homebuyer tax credit is not yet available, there are many other tax credits you can use on your federal tax return.
This is the guide will show you 9 tax breaks you have as a new homebuyer or long-time homeowner. Source: Tax Cuts and Jobs Act (TCJA)
The way it works is if you bought your home before December 15, 2017, you’re entitled to deduct interest payments up to $1 million in loans that you used for purchasing a home, building a house, home improvement, or buying a second home.
However, if you purchased after this date, there are changes. First, the amount you can claim has been reduced to $750,000. This runs until 2025, when the $1 million limit will return.
There are no differences between filing separately or jointly. However, married couples filing separately will see the overall amount cut in half.
2. Private Mortgage Insurance Deduction
You’ll usually have Private Mortgage Insurance (PMI) if you borrowed an amount worth 80% or more of the total purchase price. PMI premiums that were taken out following 2006 were tax deductible for homeowners who have itemized for more than 20 years.
This deduction expired in 2016 and was extended to 2017. After 2018, PMI premiums aren’t tax deductible any longer.
If there’s an extension, the amount you can deduct depends on your household income. It begins to be phased out after $100,000. Married couples filing separately will see the phase-out start at $50,000. After $110,000, there’s no deduction. Married couples filing separately will see the deduction removed if they earn more than $55,000 per year.
3. The Points Deduction
The ‘Points’ system is a fee charged by mortgage lenders. Of the loan principal, one point equals 1%. Unfortunately, most home loans have between one and three points, which inevitably leads to thousands of extra dollars you must find from somewhere.
If you have a mortgage, you can fully deduct the value of the points from your tax.
If you have a refinanced mortgage, you can also deduct the points. This can only be done over the full term of the loan, though, rather than all at the same time. If you refinance your mortgage, you can remove the balance from the old loan and begin with the new points on your refinanced loan.
For example, a homeowner could deduct interest from a home equity loan and then use it to pay for a college education or to pay down credit card debt.
That deduction has been removed from 2018 up to 2025.
However, one piece of good news is that the deduction is still active if you use the money to buy, build, or improve a home/second home.
Your primary or secondary home must also secure this loan.
So now, you can take the deduction if you want to add another room to your home or to refit your kitchen. Take note that this deduction counts towards the interest deduction limit on mortgages listed in the first part of this guide.
5. Property Tax Deduction
One of the most significant introductions of the TCJA was a $10,000 annual cap on how much you can deduct from property, state, and local taxes. Previously, there was never any cap. Now, this cap lasts from 2018 to 2025.
Now, you can only deduct up to $10,000 from property tax, state income tax, and state/local sales taxes. There’s no index for inflation, and both single and married taxpayers have the same limit.
If your lender demanded that you set up some form of escrow or impound account, you can’t deduct the money held for property taxes until the money is used to pay them. Any city or state refund on property tax is deducted from the possible Federal reduction.
You may be able to deduct a portion of the costs, such as part of your insurance, any repair costs, and general depreciation.
7. Selling Costs
Whenever you decide to sell your home, you have to consider taxable capital gains. But you can take a reduction on this taxable amount.
There are exclusions, so you may not have to worry about this at all if the amount is low enough to fall within that zone.
You’ll find that there are a variety of selling costs involved when it comes to selling your home, such as inspection fees, title insurance, real estate commissions, legal fees, and more.
Every selling cost can be deducted from your total gain. The gain is the selling price minus closing costs, selling costs, and what’s known as your tax basis.
On a side note, your tax basis is calculated by taking the original purchase price and adding on the cost of capital improvements minus depreciation.
8. What is Capital Gains Exclusion?
As mentioned before, capital gains exclusion could reduce the amount of tax you have to pay when you sell your own home. Married couples who file jointly will be able to keep $500,000 in profit when they sell their primary residence (if they lived in it for two of the last five years).
Single filers can keep $250,000, with the same limit applied to married couples who decide to file separately.
9. Mortgage Tax Credit Deductions
There’s a program called the Mortgage Credit Certificate (MCC) designed for low-income homebuyers who are purchasing for the first time. It provides a 20% mortgage interest credit of up to 20% of interest payments. The size of the credit does depend on the area of the country you happen to live in.
The cap on this tax credit is $2,000 per year if the certificate credit rate exceeds 20%.
To claim this credit, you must apply to your local or state government to obtain the certificate.
This credit is available every year that you have the loan, and for every year that you live in the house, you purchased with the certificate. In addition, any credit will be automatically subtracted from the income tax you owe.
These deductions are a general overview of what you can claim. There are more complex laws regarding when and how much of a credit you can claim. To find out more information about the credits you can claim, visit the official IRS website.
Online Tax Filing for Help at Tax Time
When you turn to online tax filing for help, it will be like an interview. They will ask easy-to-answer questions while filling in the correct tax forms for you behind the scenes.
Are you wondering if you’ll have to pay capital gains tax on your home sale?
Many people do not know that a large portion of homeowners who sell their homes can avoid capital gains tax on their home sales.
How Much is Capital Gains Tax on the Sale of a Home?
When selling your primary home, you can make up to $250,000 in profit or double that if you are married, and you won’t owe anything for capital gains. The only time you will have to pay capital gains tax on a home sale is if you are over the limit.
Many sellers are surprised that this is true, especially if they live in their homes for years. This is because, before 1997, the only way you could avoid paying taxes on the profits from a home sale was to use it to purchase an even more expensive house within two years.
Taxpayers over 55 had other options. They could take a once-in-a-lifetime tax exemption of up to $125,000 in profits. This required Form 2119 to be filed too.
Thankfully, in 1997, the Taxpayers Relief Act was introduced, and millions of residential taxpayers had the burden lifted. The lifetime option was replaced with the current sale of home exclusion amounts. This change makes it easier for homeowners to sell their current residence if they want to.
What is the Capital Gains Tax Rate When Selling a Home?
In 2021, long-term capital gains will be taxed at 0%, 15%, or 20%, depending on the investor’s taxable income and filing status, excluding any state or local capital gains taxes.
For assets held less than one year, short-term gains are taxed at regular income rates, which may be as high as 34% based on the taxpayer’s individual income. As a result, investing for more than a year is recommended to benefit from reduced long-term capital gains tax rates.
Do I Have to Buy Another House to Avoid Capital Gains?
No, but there is a limit. Profits earned on the sale of real estate are regarded as capital gains. However, suppose you utilized the property as your principal residence and met specific additional criteria. In that case, you may deduct up to $250,000 of the gain ($500,000 if married), regardless of whether you purchase another home.
How Can I Avoid Capital Gains Tax on a Home Sale?
If you used the rules before 1997, it does not mean that you are disqualified from claiming the exclusion on any sales now.
You also don’t have to worry about using your profit from the sale of your home to purchase another home, either. Another great benefit is there is no limit on the number of times you can claim the home-sale exemption. Usually, you can keep those tax-free profits each time you sell one of your homes.
There are some requirements that have to be met to avoid paying capital gains tax after selling your home.
1. The property has to be your principal residence (you live in it). If it is an investment property, you will have to follow the usual capital gains rules.
2. You have to live in the residence for two of five years before selling it. (This is also a sneaky way of saying you can only sell a home once every two years at the minimum).
The good news is, if your gain does not exceed the limit, you don’t have to file anything with the IRS.
Capital Gains on Sale of Second Home
If you own multiple homes, it may not be as easy to shelter sale profits as it was in the past.
The Housing Assistance Act of 2008 was designed to provide relief for homeowners on the edge of foreclosure, yet it could cost the owners when they decide to sell.
You used to be able to move into the second property, make it your primary residence, live there for two years, and profit from the gains.
Even when your second piece of real estate is converted into your primary home, you will be taxed on part of the gains based on how long the home was used as a second home and not the primary residence.
Rules for Married Couples
Married couples can profit more from the rule; however, their sales may not always be tax-free.
Either spouse can meet the ownership test. For example, it’s okay if you owned the home for two years but only added your husband when you were married six months ago. Then, you will pass the ownership test with flying colors.
However, when it comes to the “use test,” both partners have to pass. The good news is if you were unwed and living together for a period that equals two years, the IRS will allow you to pass. Nevertheless, if that isn’t the case, you won’t get the tax exclusion unless you wait until he meets the two-year mark too.
Keep in mind the two-year eligibility rule when getting to know your spouse. Remember, you are only able to sell a home once every two years. Therefore, if your new spouse sold a home in the past two years, it will prohibit you from being able to sell until their two-year time span expires.
Determining the Sale of Home Exclusion Amount
Now, once you decide you are eligible to sell and meet the exclusion rule, you have to do some math, so you can avoid pulling out your checkbook after you sell. But, first, keep in mind that you have to think about more than the money you received during the sale. It is important, but other numbers play a factor too.
You have to consider your gain. It is what decides whether you will have a tax bill. For example, you could sell your home for $750,000 and not owe any money because you didn’t gain more than $250,000 ($500,000).
1. To get to your gain amount, establish your basis in the home. (Usually, this is what you paid for the residence and the capital improvements that you made)
2. Compare the basis amount to what you received from the sale (excluding commissions and other expenses). This number provides you with the gain on the sale.
Usually, you will find that you got some profit, but it isn’t large enough for you to have to pay taxes on it.
Remember that improvements increase your basis, so a smaller portion of the selling price is considered a gain. For example, the American Relief Act is 20% for higher-income taxpayers and 15% for many individuals, and 0% for some sellers.
Partial Exclusion is Still Good
Even if you cannot meet all of the tests, it does not mean that you will not get any sort of tax break at all.
If you are selling because of special conditions, you are eligible for a prorated tax-free gain. In this case, you would calculate the fractional amount of time that the two-year use test was met.
Special Rules – Special Circumstances
Military members also have special home sale considerations. Thanks to redeployments, soldiers can find it hard to meet the residency rule and end up paying taxes when they sell. However, in 2003, it was put into law that military personnel are exempt from the two-year use requirement for up to 10 years, allowing them to qualify for the full exclusion when they have to move to fulfill their duties.
In 2008, a new rule was put into place for those who sell after a spouse dies. Instead of having to sell during the same year the spouse passes, a widow/er can take up to two years to sell and have up to $500,000 excluded from taxes.
Therefore, if you want to sell your home, consider what we have discussed today. You may find out that you won’t have to pay Uncle Sam a dime when you sell your home.
How to File Taxes for Capital Gains Home Sale
Keep in mind, if you file online, they will ask you the correct questions to help you claim the capital gains deductions you qualify for and guarantee you will receive the largest refund ever.
Electric vehicle tax credits can be highly valuable, but there are a lot of confusing rules regarding how they work. This guide will show you what you need to know about tax credits on plug-in electric vehicles. It will also answer some of the most common questions people have.
What Are the Electric Vehicle Tax Credits?
The Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC 30D), which is now known as the Clean Vehicle Credit, was amended by the Inflation Reduction Act of 2022 (Public Law 117-169), and a new requirement for final assembly in North America was added as a result of this legislation.
This requirement went into effect on August 17, 2022.
Section 30D of the Internal Revenue Code offers a credit for Qualified Plug-in Electric Drive Motor Vehicles, such as passenger cars and light trucks.
The credit for automobiles obtained after 12/31/2009 is $2,500 + $417 plus an extra $417 for each kilowatt hour of battery capacity above 5 kilowatt hours. The maximum amount of credit available for a vehicle is $7,500.
When at least 200,000 eligible vehicles created by a manufacturer and sold for use in the United States, the credit begins to phase out for that company’s vehicles.
How Much are Electric Vehicle Tax Credits?
All-electric and plug-in hybrid vehicles bought new in or after 2010 may be eligible for a $7,500 federal income tax credit.
The amount of the credit will vary depending on the capacity of the battery used to power the car. State and municipal tax breaks may also be available.
If you purchased a Nissan Leaf and your tax bill was $5,000, that’s all you get at the end of the year. You’re not going to get the other $2,500 as part of a refund. Furthermore, if part of the credit is unused, you can’t carry it over to the following year.
This credit only applies to purchases of a vehicle. If you happen to lease the vehicle, the manufacturer gets to take advantage of the tax credit instead. Some manufacturers will lower your monthly payment to take the credit into account, but they’re not obligated to do this.
The size of the battery in the car is one of the most essential criteria in determining how beneficial it is to claim the electric car credit. For example, the Toyota Prius Prime has a smaller battery, and it’s a hybrid, so you can only get a maximum of $4,502 from purchasing this vehicle.
How Much is the Electric Vehicle Tax Credit for a 2021 Tesla?
The Clean Energy Act for America would benefit Tesla by allowing most Tesla vehicles to qualify for an $8,000 (House version) or $10,000 (Senate version) refundable EV, electric vehicle tax credit while discouraging Chinese EVs from entering the US market.
Tesla, on the other hand, does not utilize unionized workers. Therefore it would be ineligible for the extra $2,500 (Senate version) or $4,500 (House version) credit that corporations like Ford and GM would get.
To help you understand how much each vehicle is worth, look at the chart below:
What Vehicles Currently Qualify for the Federal Credit?
The US Department of Energy maintains the entire list. You can sort by vehicle type or manufacturer.
Are There Any Terms and Conditions Associated With the EV Tax Credit?
There are additional rules involving EV tax credits. As well as the rule on how much you can get back from the Federal government, there are a few other things you must take into account:
The tax credit is awarded to the registered owner of the vehicle, which is why if you’re leasing, you can’t claim the credit. Instead, try to find a manufacturer that will factor the credit into your monthly repayments.
You can’t claim the credit if you’re buying an electric vehicle to resell it. However, this is almost impossible to prove, so plenty of people have claimed the credit anyway.
The vehicle’s primary purpose must be for driving within the US. In other words, if you live in Mexico, you can’t just buy in the US and immediately take it to Mexico, at least not for the first year.
Only cars built by qualified manufacturers are eligible for full credit.
Battery electric vehicles and plug-in hybrids must have battery packs that possess at least 4 kWh of energy storage. They must also be capable of being recharged from an external power outlet.
Manufacturers don’t have to certify their vehicles to the IRS that they meet the credit requirements. You can generally rely on manufacturers and their word as to whether a car is eligible. This also applies to electric motorcycles, three-wheel EVs, and other similar vehicles.
Please take note that the IRS is well within its rights to reject a request for a tax credit.
The car must have a qualified plug-in electric drive motor.
Do the Electric Car Tax Credits Expire?
The government has already begun to phase out electric vehicle tax credits. This is because sales volume is increasing, and they were introduced to encourage this industry.
There’s no set date for when electric vehicle tax credits are due to expire. It depends on the manufacturer. This arises when a manufacturer sells 200,000 qualifying vehicles. Tesla was the first manufacturer to reach this limit back in July 2018.
That’s why from January 1st to June 30th, 2019, the tax credit has decreased by $3,750. From July 1st until the end of the year, the credit is only worth $1,875. From 2020, you won’t be able to claim tax credits on a Tesla.
General Motors became the second manufacturer to hit this milestone in the final financial quarter of 2018. From April 2019, qualifying vehicles are only worth $3,750 in tax credits. Then, from October 2019 to March 2020, the credit drops to $1,875. After that, the credit phases out completely.
Nissan is expected to be the third manufacturer to hit the limit, but as of this writing, it’s still 70,000 sales away from this. However, analysts expect sales to pick up soon.
Can You Refuse to Take Electric Vehicle Tax Credits?
This is a common question from people who want to pass the credit to someone else, such as if the car is used as a loan or test car.
The answer is you can’t pass electric vehicle tax credits to others. Even if the original owner didn’t claim the credit, the new owner can’t claim the credit.
This is especially important to know about if you plan on buying a used car. You may find that purchasing a new model is worth the additional cost because you’ll get more back from the tax credit.
Are There Any Expired Programs?
Hybrids and clean-diesel cars used to qualify for tax credits, but these were discontinued in December 2010. In addition, models like the Toyota Prius and the Hyundai Sonata Hybrid don’t have batteries that can be charged from an external source, so they’re no longer relevant for electric vehicle incentives.
Are There Any State Programs I Can Take Advantage Of?
Do remember that the Federal government is not the only body you can claim a tax credit from. There are dozens of programs run by states and even regions that can offer tax credits on electric cars and other vehicles that take advantage of alternative fuels.
Many states have multiple programs, but the problem is most of them apply only to businesses. A lot of credits are in the form of exemptions, such as inspections and fees. Some programs even offer access to carpool lanes and regional free or reduced parking.
Retail buyers do have some options, though. They can claim rebates, tax credits, and reductions on vehicle taxes by purchasing a qualifying vehicle.
California is one such state that does this. If you buy or lease a new car, like the Chevrolet Bolt or the Jaguar I-Pace, you can receive a rebate of $2,500. These programs are in addition to the Federal tax credit. So, Californians can shave up to $10,000 off the cost of a new model.
On the other hand, Plug-in hybrids work a little differently because their batteries are smaller, and they burn some form of petroleum-based fuel most of the time. Cars like the Chevrolet Volt are only eligible for $1,500 rebates in California.
It would help if you looked up Plugin America for more information. They provide a map of the country and all the different plug-in car rebates, credits, and deductions. The Department of Energy also offers a similar resource.
Before you shop, look up what you may be entitled to. Unfortunately, many states have either ended or will soon end their programs. For example, Georgia ended its rebate program back in July 2015.
What about Fuel Cell Cars?
If you purchased a fuel cell car after January 1st, 2017, you’re no longer able to claim Federal tax credits on these cars. Those who bought before were able to get a Federal tax credit of $4,000, in addition to credits ranging from $1,000 to $4,000. After that, it largely depended on the fuel efficiency rating of the vehicle.
Some states still have these programs. For example, California continues to offer a $5,000 rebate on the Toyota Mirai.