Green Energy Tax Credits

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Green Energy Tax Credits

There is an umbrella of green energy tax credits available to protect our dream of home ownership from the growing costs of energy consumption that are also beneficial to the energy industry in its operations to provide that energy continuously, effectively and efficiently.

Many of the building code changes we have experienced in the last decade are as a result of efforts by government agencies, in cooperation with the home-building trades, to provide the means not only to save on energy costs, but to have that energy delivered to our homes with an eye to energy conservation.

These efforts were passed by Congress in 2005 with the Energy Policy Act with later enhancements provided in the 2008 Energy Improvement and Extension Act.

The legislation of these two acts provide tax credits that apply in direct effect to decrease our adjusted gross income on our federal and state income tax calculations, thus reducing our tax bill.  In some respects, because these credits are part of the building code, they are automatically engaged in the construction of new homes, but we also have the ability to retrofit and upgrade older homes to meet new recommendations of energy-saving techniques.

Here are the five specific energy systems addressed by the combined legislated acts and the conditions for qualification for the tax credit:

Solar electric systems are most effective in regions where extensive numbers of annual daily sunshine exist, but can be of help virtually everywhere.  The greater the numbers of days of sunshine; the greater the effectiveness of the system.  The installation and placement in service of a solar electric (photovoltaic) system after 2006, and modified for January 1, 2009, now allows a credit of 30 percent of the cost of the system and installation with no limit on the total cost.   “Placement in service” for a new home is equivalent to the date of occupancy.  The installation must meet local electrical and fire codes and the credit is available to claim through December 31, 2016.

Solar water heating systems have identical requirements for qualification and features of the tax credit as above for solar electric systems.  However, to qualify, the installation must also be certified by the Solar Rating and Certification Corporation (SRCC).  The installation purpose must be for heating the home, not for outdoor swimming pools and hot tubs.

Fuel cells comprise a relatively new energy source system that converts stored fuel into electricity or heat and has the ability to reduce a home’s typical carbon footprint by one-third.  The installation and placement in service of a fuel cell system after 2006, and modified for January 1, 2009, now allows a credit of 30 percent of the cost of the system, but is not unlimited against the cost.  A maximum of $500 per 0.5 kilowatt (kW) of generated power tax credit can be claimed up to December 31, 2016.  However, one downside of fuel cells is their relatively high cost; up to or exceeding $50,000 with installation costing up to $4,000.

Small wind turbine systems are only going to be effective in windy regions where frequent cycling of the turbine will generate electrical power.  If this fits your regional conditions, a wind turbine can be installed with available tax credits in a primary and secondary residence of old or new construction.  The home owner must have residence in the primary or secondary residence; rental properties do not qualify for the tax credit.  The tax credit consists of 30 percent of the total cost of the wind turbine system, plus installation, with no limit on cost and installation charges.  However, the power capacity must be less than 100 kW.

Geothermal heat pump systems may not be a solution for everyone since the system dependson access to the natural heat produced by the earth’s core.  Only regions where the earth’s crust is relatively thin can access this natural heat easily and cost effectively.  Even so, the purchase and installation can be expensive — $30,000 or more.  For those residents who have and can afford this easy access, once installed, a geothermal heat pump will provide direct heat without conversion from another source such as water, sunlight or wind.  It is one of the most efficient and effective home heating alternatives.  The tax credit is up to 30% of the cost of purchase and installation for any installation as of January 1, 2009 through December 31, 2016.

Final thought

There are also more passive approaches to save energy costs, even when applying one of the systems noted above.  Replacing doors, windows and skylights with more energy-efficient models, water heaters, appliances, and replacing or re-painting an existing roof with reflective paint or asphalt granules all offer tax credits for their implementation and will reduce energy costs.

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