Americans celebrated their first official Earth Day on April 22, 1970. The day was the brainchild of Senator Gaylord Nelson (D-WI) who saw it as an opportunity to have the nation focus on the environment. That focus is considered important to the creation of the United States Environmental Protection Agency founded under President Nixon that same year (1970) as well as the passage of a number of environmental acts.
This year marks the 46th anniversary of Earth Day. To mark the day, here are 7 tax breaks you can claim for going green:
- Charitable donations. We all know that writing a check to a charity is tax deductible but donating in-kind – either for reuse or recycling – is also tax deductible. In addition to clothes and household goods that can be reused or resold by a charitable organization, donating electronics and computers (or electronics and computers parts) keeps them out of landfills. Be sure to keep good records for donations of non-cash items and be able to substantiate the value of your donation. You can generally take a deduction for the fair market value of the items, or what the item would sell for in its current condition, but you’ll want to be able to establish an appropriate value. If you’re valuing the donation yourself because it’s less than $500, be specific, noting the description and condition of the items. If you contribute property worth more than $5,000, you must obtain a written appraisal of the property’s fair market value. If you make non-cash contributions (generally those over $500), you may also be required to fill out one or more parts of form 8283 (downloads as a pdf). For more tips on charitable giving, see this previous article.
- Residential Energy Efficient Property Credit. If you make qualified energy efficient improvements to your home, you may be entitled to a tax credit of 30% of the cost of your qualifying improvements. The credit applies to qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, and fuel cell property and includes any costs for labor allocable to the onsite preparation, assembly, or original installation as well as piping or wiring. The best part? Unlike some other home-related tax credits, the credit is not restricted to be your main home.
- Electric vehicle incentives. If you buy an electric vehicle, such as a new Tesla, you may be entitled to a tax credit of up to $7,500. The tax credit begins to phase out when a manufacturer sells 200,000 qualified vehicles – after that, the credit begins to shrink. Again, the phase-out is by manufacturer, not by model, meaning that the total number of cars sold by Tesla, for example, matters, not the total number of the Tesla Model 3 sold.
- Nonbusiness Energy Property Credit. If you pay for certain qualified energy efficiency improvements in your home, you may be able to take a credit equal to the sum of 10% of the amount paid or incurred for those improvements (not including installation). Qualified improvements include adding insulation, energy-efficient exterior windows and skylights, exterior doors and metal or asphalt roofs designed to reduce heat in your home. A credit is also available for certain high-efficiency heating and air-conditioning systems, as well as high-efficiency water heaters and stoves that burn biomass fuel (including installation). The lifetime limit for these improvements and systems is $500.
- Pre-tax savings for mass transit commuters. If you commute by mass transit using a transit pass, you may qualify for a $255 per month tax break in the form of pre-tax savings. A transit pass is any pass, token, fare card, voucher, or similar that allows you to ride, free of charge or at a reduced rate, on mass transit including bus, rail, or ferry. To take advantage of this benefit, you must opt into an arrangement provided by your employer: if you do, you can exclude these benefits from your taxable wages.
- Qualified bicycle commuting reimbursement. If your employer offers a reimbursement program to bike commuters, that reimbursement is not considered income for reporting purposes on your federal income tax return, meaning it’s a tax-free benefit. Your employer can offer a tax-free reimbursement of up to $20 per qualified bicycle commuting month. A qualified bicycle commuting month is any month that you regularly use the bicycle for a substantial portion of the travel between your residence and place of employment so long as you do not also receive transportation in a commuter highway vehicle, any transit pass or qualified parking benefits. The reimbursement should be earmarked for bicycle expenses; those would include the purchase of a bicycle and bicycle improvements, repair and storage.
- Recycled and green office supplies. Okay, this one is cheating a little. You get a tax deduction for office supplies for your trade or business (so long as they’re ordinary and necessary) whether or not they’re recycled – so why not buy recycled? Additionally, there are a lot of environmentally friendly products that you can easily and painlessly incorporate into your business from recycled pens to recycled paper. You can even invest in recycled business cards as well as recycled letterhead and envelopes. Those environmentally responsible cleaning products, trash bags, and break room supplies (including coffee)? Also tax deductible. When you get the chance, consider going green – remember, the tax break is still there.
Of course, this isn’t an exhaustive list but it’s a start. What about those things you can’t deduct? The cost of organic food, those sneakers you bought to walk to work, the composter you installed in your kitchen or those trees you planted in your yard? Those might be great for your carbon footprint but personal expenses are not tax deductible – but don’t let that stop you. Not everything has to be tax-driven. It’s a big world: let’s all do our part to keep it green.