Replacing your old windows is never a cheap job. In most cases, this is something for which homeowners have to save. Is there any way around this expense and the accompanying headaches? As far as we know, there is not. However, there are quite a few ways to save money on your new energy-efficient windows.
How Do These Tax Incentives Work?
The government wants to encourage the use of energy-efficient home building materials and appliances. Obviously, this includes most modern windows. That’s why they offer a large number of tax rebates and incentives for those who choose the right kinds of windows. These perks might be offered by the federal, state, or local government in your area.
If you have made any energy-saving home improvements in the previous year, you can claim them on your taxes and receive various perks. These might include rebates, tax credits, free inspections, etc. To do this, you will need to use IRS form 5695 and fill it out completely.
How Do I Find Them?
There are a few ways in which you can find out about the tax perks for which you might be eligible. One rule to follow right away is this: Don’t limit yourself to one kind of government regulation. Federal, state, and local governments all have different sets of regulations, and any of them might be helpful to you.
You might begin by checking this website, which is funded by the U.S. Department Of Energy. Just open up the page and look for the interactive map. Click on your state, and you should get a list of all the energy-based tax incentives for which you might qualify. Of course, this list won’t be tailored to your exact situation, so it’s only a starting point.
Once you have found an incentive that might be useful to you, make sure you look it up and read the statute in its original form. Otherwise, you might end up getting a mistaken impression from someone else’s description. Remember: It’s not true until you read the statute from a government source.
As for federal regulations and incentives, you should check energystar.gov. It contains a comprehensive list of federal incentive programs in this category. The Energystar program is all about promoting the efficient use of energy in all aspects of life. The USDA also has a program that offers tax rebates for agricultural producers and rural small businesses that use renewable energy.
Does My Utility Company Need To Do Anything?
In order to qualify for tax incentives, your utility company will not have to do any real work. However, they will need to cooperate with any requests from the government to hand over data. Unfortunately, not all of them are quick to comply. Due to the nature of privacy laws, the government cannot simply force them to hand over energy usage data, nor is there any law dictating a need to hand over that information.
Thankfully, we can get a little more help from that energystar.gov website. They offer an interactive map that shows the locations of cooperative utility companies. The companies listed will hand over energy usage data when asked, making it far easier for you to get those tax breaks. From the perspective of the IRS, they need a way to verify that you actually deserve this tax break, so try to choose a utility company that will make it easier for them.
Although this is not universal, some utility companies will offer incentives as well. They want their customers to hold down their energy usage because that makes it easier for their business to run smoothly. When too many people try to use too much power at once, it can overload their systems. That translates to all kinds of expensive problems and repairs. Make sure you ask your utility company (or companies) about energy-saving programs.
If nothing else, you should get your utility company to do an energy audit of your home. This might sound like a strenuous process, but it’s actually quite simple. The utility company will send one of their experts to your home, and that person will then evaluate how energy-efficient your home is (or isn’t). They will identify problem areas and suggest basic solutions. When claiming energy-related tax credits, the report of this energy audit could be very helpful.
For instance, you can use two different energy bills (one before the audit, one after the audit) to show how much you were able to save on your electric bill by taking a certain measure. Obviously, you would also need to show any relevant receipts for any money that you spent. If you want to do a preliminary energy audit, your utility company might have an online energy calculator like this one that will get you started.
What Is The Difference Between A Tax Credit And A Rebate?
Tax credits and rebates are both good things, but they are definitely different. A tax credit is a reduction in the amount of taxes that you owe. As they say, a penny saved is a penny earned. You claim these credits when you file your taxes each year, and you can only claim for the preceding year.
A rebate, on the other hand, is a partial or total refund of the money paid for the improvement. In this case, they would reimburse you for the cost of the windows. Depending on your eligibility and the local rules, you might get a partial repayment or a complete reimbursement.
At this point, you might be wondering if it is possible to combine rebates and tax credits. In most cases, there is nothing illegal about this idea. You might want to talk to someone at the department of energy before you start going crazy with this idea, but you should be able to use more than one tax incentive at a time. Thus, you would be foolish if you didn’t maximize your savings by taking advantage of all relevant incentives.
What Other Home Components Can Offer Tax Incentives?
Apart from windows, there are a number of other home components that can be used to claim energy credits or rebates. Of course, this will only work if those home components are made to be energy-efficient. Look for anything with the Energystar logo, and it should be eligible. Here are a few items that can save you money on your taxes:
- Air-source heat pumps
- Biomass stoves
- Efficient HVAC units
- Gas-powered hot water heaters
- Insulation
- Energy-efficient roofs
- Energy-efficient doors
- Geothermal heat pumps
- Solar panels
- Wind turbines
Federal Regulations
It would be outside the scope of this article to try and cover all of the incentive programs offered by state governments, local governments, and utility companies. However, we can cover federal regulations because they are more or less universal. If you would like a little more info about utility company programs, this page might be a good place to start.
Every year, federal legislators threaten to cut out these energy tax credits, but they have (so far) been preserved. The budget extension that was passed recently by the house and senate included provisions to extend the life of these energy-based tax breaks. Many different types of home improvement are regulated, but we are concerned with windows first and foremost.
To be eligible for any kind of tax credit/rebate, you have to use windows that meet the governments’ standards of energy-efficiency. That means compliance with the Energystar program and all of its provisions. One piece of good news is the fact that you can claim your windows on your taxes without replacing all of them. In fact, even one window can be claimed. You can also claim windows that were added in places where they did not previously exist.
The usual tax credit that is received here is ten percent. By that, we mean ten percent of the total cost of the windows. Before you start getting ideas, you should know that there is a cap of $200 on this benefit. Of course, the IRS doesn’t want people getting that $200 over and over again, so they added a lifetime limit of $500.
Common Questions
Here are some of the more common questions that we receive on this subject.
Will energy-efficient windows affect the value of my house?
They will affect the value of your house, but it will almost certainly be a positive effect. The energy-efficient windows can be an excellent selling point to give the home a little more appeal. However, there will be a change in the way you will be taxed. When you are taxed for the sale of a home, the amount of taxes you owe will depend on how much profit you made. So, if you buy a home for $150,000 and sell it for $200,000, you will be taxed for $50,000 worth of capital gains. However, energy deductions must be deducted from your base cost (the $150,000, in our example case). That means your capital gains will be bigger, and your taxes will be increased.
Can You Get A Window That Is Also A Solar Panel?
Yes, and there is a very good reason to do so. While the IRS and other tax authorities will give you deductions and rebates for energy-efficient windows, they will give you bigger perks for the production and use of renewable energy. By combining a window with a solar panel, you can qualify for two different tax credits at once. At present, there are only a few companies that offer these kinds of windows, but that will certainly change if they grow in popularity.
Conclusion
Window rebates and incentives are a great money-saving tool. If you need to buy new windows anyway, you might as well take advantage of that investment. More importantly, this little tax break gives you a chance to recoup some of the money that you spent on your new windows. Over time, those windows might even pay for themselves. If you have found this article to be helpful and informative, feel free to fill out the contact form below so that you can receive more of our expert wisdom.
