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Tax Incentives Promote Energy Efficiency, Renewable Power

A Look at Ways Savvy Homeowners Can Save Money Now and in the Future

By Renee Cho

Apr 4, 2010

With taxes on the mind this month, some homeowners are discovering just how much investing in energy efficiency and renewable energy can pay off.

When Congress last year passed the American Recovery and Reinvestment Act (ARRA), better known as the stimulus package, it gave homeowners some powerful financial incentives for greening and weatherizing their homes.

How much? In the case of Barbara Gardner, a long-time homeowner in Sacramento, Calif., the local and federal savings added up to almost half the cost of a solar power system — and she erased her utility bill, once $1,100 a year, in the process.

“We installed 44 free-standing solar panels in the back field in 2008 but didn’t finish the job until 2009 because we heard about the tax credit,” Gardner told SolveClimate.

“The system would have cost us $55,000, but after a rebate from SMUD (Sacramento Municipal Utility District) of $15,300, based on the number of kilowatt hours our system was expected to produce, and the federal tax credit of $12,000, the net cost was $28,000.”

Moreover, she now sells extra electricity back to SMUD.

Raymond Lou, an accountant and lawyer in Glen Rock, N.J., explained how two of his clients also took advantage of the tax credits on a smaller scale for 2009:

One bought a high efficiency boiler costing $10,000 and got a $1,500 tax credit. The other insulated his garage and bought an energy efficient storm door; the original cost was $3,900 for both, but after his $1,170 tax credit, the net cost was $2,730. The insulation should save money in the long run, as well.

Here’s a look at what homeowners thinking about making energy efficient improvements or adopting renewable energy technology need to know, and a reminder for those who who made improvements in 2009 to claim the tax credits they are entitled to. The ARRA’s are substantial, but they won’t last forever:

• The federal Residential Energy Efficient Tax Credit expires on Dec. 31, 2010. It covers 30 percent of the cost, including installation, of an energy efficient product placed in service during 2009 and 2010; the cap is $1,500. (A tax credit directly reduces the amount of taxes to be paid.)

This credit applies to biomass stoves, heating ventilation and cooling, and nonsolar water heaters, such as gas, oil, propane or electric heat pump. It also applies to the cost, but not installation, of insulation, reflective roofing, energy efficient windows, doors and skylights. To be for the tax credit, all improvements must meet specific criteria, and must be made on an existing home that is a principal residence. The maximum credit is $1,500, even if several measures are implemented, but while the tax credit cannot be carried forward from 2009 to 2010, it’s possible to take part of the $1,500 credit in 2009 and the rest in 2010 if separate purchases are made.

• The federal Residential Renewable Energy Tax Credit extends longer, to Dec. 31, 2016. It covers 30 percent of the cost, including installation, of qualifying geothermal heat pumps, small wind turbines for residences, and solar installations (solar water heaters and solar panels), and there is no cap. Installations can be made on existing homes and new construction, and on both principal residences and second homes.

A tax credit of 30 percent of the cost, including installation, up to $500 per .5 kW of power capacity is also available for residential fuel cells and microturbine systems on principal residences. You cannot get back more in credits than you paid to the government in taxes throughout the year, but the unclaimed portion of the tax credit can be carried forward for as long as it is in effect.

To take the credits, file IRS Form 5695 and keep all receipts and the manufacturer’s certification that the product qualifies for the tax credit.


State Incentives

ARRA also channeled $3.1 billion to the State Energy Program, enabling many states to provide incentives to promote energy efficiency and renewable energy. Here are some examples of the variety of state incentives offered:

The Coalition Government

The Coalition Government here in the UK has said it's going to be 'the greenest government ever', and it's going to publish the energy use of government buildings in real-time so that people can see for themselves how the emissions reductions targets are being met. On the domestic scale, clients of SolarUK have certainly found that by having energy monitors along with their solar hot water systems they are more aware of energy use and so think twice before switching on unnecessary electrical appliances. As TreeFrog Builders suggests, solar panels should ideally work with other measures to reduce energy use in the home.

For solar projects in

For solar projects in particular, a wide variety of incentives are offered by the federal government. Up to 30% tax credit (maximum of $2000) is offered for solar PV, fuel cells and water heaters installed during 2006 and 2007. Moreover, the residents of ‘renewable energy districts’ can apply for low-interest loans to fulfill their renewable energy dreams. But the commitment of state governments to the cause varies.

Read More:

Energy Efficiency

I believe that LED lighting combined with power factor correction provides the best ROI (return on investment). Factor in the Federal Tax incentives and it's a no brainer. We should see a lot of commercial building and home owners invest in energy savings technology in the coming years.

Tax Incentives

Agreed TFB, people need to have someone they can rely on to tell them they are doing the right thing and getting all of the credits they have coming to them.

Energy Efficiency

I think solar panel is a great way to be less reliant on local power prices, but you should really have a home energy auditor review your home before making such a large investment, since you could minimize the amount of solar panels needed by reducing your home energy uses with easy fixes like adding missing insulation, etc.

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