Did you do any green upgrades in 2021? Don’t Miss These Tax Credits


Many Americans have incorporated green practices into their daily lives — from recycling to going paperless and even reducing meat consumption.

Switching to clean energy or buying an electric vehicle are other ways to go green, but large-scale upgrades often come with steep price tags. Several existing tax credits can help offset the cost of engagement, but it helps to know the details.

Whether you’re looking to make improvements this year or wondering if changes you made in 2021 count for a tax cut, here’s a quick-start guide to current federal tax incentives for energy efficiency and other environmental improvements.

Upgrading to an electric vehicle comes with a few feel-good benefits. In addition to reducing your carbon footprint, electric vehicles often require less maintenance and cost less fuel than their gas-powered counterparts.

Your purchase could even count for a federal tax credit of up to $7,500. The problem? You’ll need to keep an eye out for eligible vehicles and for how much.

“What you’ll find is that high-performance all-electric vehicles take full advantage of the credit,” says Shannon Christensen, attorney and editor of Lindstrom, Minnesota-based Thomson Reuters Tax and Accounting.

Hybrid models, on the other hand, often qualify for a smaller sum.

Here’s a look at some of the fine print:

  • The credit is worth $2,500 to $7,500, depending on the car’s battery capacity.
  • Credits are reduced and eventually disappear after a manufacturer has sold 200,000 qualifying vehicles.
  • You must own the car. Used or leased cars are not eligible.
  • The car must weigh less than 14,000 pounds.
  • The credit is non-refundable; it may reduce your tax bill to zero, but it will not result in a refund.

Don’t forget to look for additional incentives at the state and local level, says Gena Jones, a lawyer and certified public accountant based in Flossmoor, Illinois. California’s Clean Air Vehicle program, for example, grants carpool lane access to certain electric vehicles. New Yorkers, on the other hand, could be eligible for a state-level rebate of up to $2,000 in addition to the federal tax credit.

Green home tax credits have two components: one for renewable energy systems and another for energy efficiency.

Taxpayers who switch to renewable energy systems for their home, such as solar panels or geothermal heat pumps, may be eligible for a non-refundable tax credit of up to 26% of the costs of the installed systems from 2020 to 2022. After that, the percentage goes up to 22% for systems installed in 2023.

Switching to an alternative energy system could also help you save on utilities and even increase the value of your home.

But note that some grants — like, say, a kickback check you get from a utility company — must be included as income when you file your return, Christensen says. Otherwise, you will need to subtract the amount of the check from the total costs you are claiming before calculating your credit.

If you’re wondering about smaller escrow changes, the IRS also offers some relief. Adding insulation or upgrading the energy-efficient doors or windows in your home could qualify you for a non-refundable tax credit of up to $500. The warning ? This credit was not renewed for 2022, so only qualifying upgrades in 2021 count at this point.

If you think you qualify for a federal tax incentive this year, be sure to provide your tax preparer with all receipts and certificates needed to redeem the credit you’re considering, Jones says. If you are missing documents, you may jeopardize your chances of qualifying.

And if you’re not quite ready to commit to an electric vehicle or solar panels, be sure to keep an eye out for the fate of President Biden’s Build Back Better Act in the months ahead. Although currently stalled in Congress, the bill has several ambitious plans in place for clean energy, including generous expansions and enhancements to the existing appropriations above.


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