Save Some Green on Going Green

The federal government and each of the states provide a variety of tax breaks and other incentives to encourage renewable energy production and energy efficiency.

These programs received a significant boost when a solar credit was included in the Emergency Economic Stabilization Act of 2008 (also known as the “Bailout Bill”) and signed into law on October 3, 2008 by former President Bush. The credit has been extended by President Obama as part of the American Recovery and Reinvestment Act of 2009 (also known as the “Stimulus Bill”). Furthermore, the 2008 and 2009 Acts have dramatically improved the after-tax economics with regard to State Incentives as well in the form of Rebates/local incentives, State Credits, and local utility payments for renewable energy credits.

Federal Credit

There are two credits that concern energy efficiency for individuals: the solar credit and the credit for certain improvements, such as windows and doors, insulation, roofs, etc., for an already existing home, limited to $1,500. The solar credit provides a unique opportunity for individuals to benefit from some environmentally friendly construction on their new or existing homes, and the savings could be significant.

The tax credit is available at 30 percent of the cost, with no upper limit through 2016, for existing homes and new construction for geothermal heat pumps, solar panels, solar water heaters, small wind energy systems, and fuel cells for Residential Solar Power Electric Systems (“RSPES”) installed after December 31, 2008. The credit can now also offset alternative minimum tax (“AMT”) liability (reduced by other personal nonrefundable credits and the foreign tax credit).

An individual, or the sole owner of a single-member LLC (since this structure is disregarded for federal tax purposes), would be eligible for a credit equal to 30 percent of the cost of solar panels and solar water heaters on a primary or secondary residence, a benefit not offered under the requirements of the original credit. Specifics on what requirements need to be met in order to qualify for this credit (from a building perspective) can easily be obtained from the builder.

Once the initial structure is in place, the individual would qualify for a credit of up to $1,500 to make improvements to an already existing home, as long as they are made by December 31, 2010. However, the expense of re-doing parts of a structure already in place would most likely exceed the $1,500 cap, and the individual would not qualify for a credit if the improvements are put into place during initial building or are for a secondary home, so this credit will likely capture a significantly smaller group.

Furthermore, the contractor is subject to certain credits as well for building energy efficient homes, but the home builder’s credits are separate from individuals’ credits and should be examined separately when reviewing an individual’s or an entity’s qualifications for available credits. Home builders are eligible for a $2,000 tax credit for a new energy efficient home that achieves 50 percent energy savings for heating and cooling over the 2004 Code(1). Contractors of manufactured homes conforming to Federal Manufactured Home Construction and Safety Standards can also take advantage of this credit. There are also federal and state tax deductions for commercial buildings, with many of them at the state level.

State and Local Focus on Renewable Energy

In tandem with the federal government’s extension and expansion of renewable energy credits, several states and their political subdivisions provide tax breaks and other incentives for investing in renewable energy property. The incentives offered vary depending on the jurisdiction. The most common incentives include individual and corporate income tax credits or deductions for investing in certain types of renewable energy property, sales tax and property tax exemptions for renewable energy equipment, and low-interest loans and/or grant funding for use in building renewable energy systems. These incentives may be limited in amount or by type of renewable energy property, with solar and wind production equipment gaining the most favor. In addition, many locations provide production incentives whereby owner operators may obtain preferred pricing to sell the energy produced back to the local utility.

The lack of uniformity among the states and the volume of rules and regulations prohibit a full discussion of each incentive program. We have summarized in the chart below the jurisdictions in which a variety of incentives for going green may be available.

¹ 2004 International Energy Conservation Code (IECC)

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