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FEATURE ARTICLE - MAR/APR 2005
Tax Credits for Cleaner Energy
Take advantage of these incentives to purchase clean energy for your home that doesn't pollute or contribute to global warming.
Some people told Gary and Ulrike Calaba that solar electricity wasn’t practical in rainy Oregon.
However, with rising energy bills, and concerns about their contributions to pollution and pollution-related problems like global warming, the Calabas were determined to minimize their use of conventionally generated electricity, so when they found out the state of Oregon would help them “go solar” with a tax credit, they jumped at the chance.
Gary shopped around to find the best deal on the photovoltaic technology that would help him add solar energy to his house, and then did the installation himself, with help of some friends
“I like how simple this system is,” Gary told the Oregon Office of Energy. “We need to tell more people about how easy solar is and just set up houses with solar as a matter of course.”
After an initial cost of $7,000 for the parts, the Calabas received a $1,500 income tax credit that made the project more affordable. What’s more, the installation of the photovoltaic cells reduced their use of conventional electricity by a third. On sunny days, the system produces more electricity than the Calabas’ house needs, so they actually sell their excess power back to the Portland General Electric Company, saving them even more.
With the savings on their electric bills, and the assistance from the tax credit, the Calabas say their system easily pays for itself—all while giving them the peace of mind that comes with choices they know help preserve the Earth.
“It’s a good example for the next generation,” says Gary.
While no federal tax incentives currently encourage more sustainable residential energy generation, there is a patchwork of state incentives, including income tax credits like the Calabas’, property tax incentives, sales tax exemptions, and rebate programs that helps homeowners green their energy all across the country.
Read on for an overview of available programs, and visit the Database of State Incentives for Renewable Energy (DSIRE) at www.dsireusa.org to learn more about the specifics of the options available in your state.
Income Tax Incentives
Right now, 14 different states offer personal income tax incentives for the installation of
renewable energy systems for the home.
Deductions vary widely, from a low of $500 in Montana to a whopping high of $20,000 (spread over four years of tax returns) in neighboring Idaho. Gary Calaba’s Oregon deduction of $1,500 is about average, with California, Hawaii, North Carolina, and North Dakota offering deductions as a percentage of the cost of your energy system, with maximum credit amounts capped based on the type of system you install.
For example, North Carolina’s income tax credit allows homeowners to recoup up to 35 percent of their renovation costs when they make energy-saving improvements, but the maximum amount is capped at $1,400 for solar water-heating systems, at $3,500 for daylighting, and at $10,500 for photovoltaic cells.
Property Tax Incentives
One of the most popular programs, property tax incentives are offered by 26 states. For most states, this means that your renewable energy equipment cannot be valued at a higher rate than conventional equipment (no matter what its actual cost) when your property is assessed for tax purposes.
Some states go further. For example, in Indiana and Louisiana, the value of a renewable energy system is not included at all in the assessment of buildings, swimming pools, or other structures to which they might be attached (i.e., adding a $7,000 renewable energy system to property valued at $100,000 would have no effect on the $100,000 assessed value of that property). In other states, like Illinois and Maryland, special property tax assessments are offered on a case-by-case basis, with an assessor determining your exemption based on the type of equipment you have.
(California residents should note that to be eligible for a property tax exemption in that state, you must have your system installed by the end of 2006.)
Sales Tax Incentives
Sixteen states offer sales tax exemptions for the purchase of renewable energy equipment. Most states offering such an exemption do so without limits or restrictions, removing 100 percent of the sales tax from the price of renewable equipment purchased from a retailer. Some states do specify the production capacity of eligible systems, and Arizona (which allows building contractors as well as retailers to avoid charging sales tax) imposes a $5,000 cap per contractor per project.
Carol Levin, owner of Sunnyside Solar Inc., in Guilford, Vermont, says that while exemption from her state’s small six percent sales tax isn’t usually a “make or break” factor for customers who want to go solar, it does offer a welcome deduction for customers who are trying to save as much as possible, adding hundreds of dollars to the customer’s savings in conjunction with other incentives, such as a rebate program that Vermont is working on establishing.
(For the most current information on sales tax in your state, remember to check the DSIRE Web site. For example, Florida’s sales tax exemption is set to expire at the end of June.)
In addition to tax incentives, eighteen states offer rebate programs that allow you to apply for refund money from the state after you purchase renewable energy equipment.
Be sure to fully investigate the rebate program in your area, since many have more restrictions than the tax incentive programs. For example, in Pennsylvania, rebates for solar photovoltaic systems are offered only to customers of the PECO Energy Distribution Company, and only to systems installed by certain participating contractors. All systems must be inspected by an administrator of the rebate program before being certified for acceptance.
However, once you’ve ensured that your system meets all rebate requirements, rebates can provide one of the most affordable ways for you to go renewable at home. The Pennsylvania program refunds up to 80 percent of the cost of your system, and both Connecticut and Nevada provide conditional rebates with caps as high as $25,000.
Use Your Voice: Ask for More
Despite the assistance some states provide, there are still thirteen states that offer no tax incentives to go renewable at home.
If you live in a state with no renewable energy incentives, contact your elected representatives. Let them know what other states are doing, and remind them that helping people switch to renewable energy is good for the health of people and the environment, good for our national security goals, and good for job creation. Also, let your federal representatives know how you feel.
Right now, there are no federal tax or other incentives for individuals to make residential improvements that shift the nation’s energy consumption toward renewables. The last residential tax credit for solar energy expired in 1985, and although proposals for similar tax credits have been proposed since then (in 1999, 2001, and 2003), none have made it all the way through the House and Senate to become law. In January, a bipartisan coalition of lawmakers decided to try again. The Residential Solar Energy Tax Credit Act was introduced to the House of Representatives and referred to the House Ways and Means Committee. The bill proposes a 15 percent or $2,000 credit for individuals who purchase equipment to upgrade their energy consumption to solar.
And ask your representative to think really big and implement our Solar-High Impact National Energy Plan. (Visit Green America's Solar Catalyst Group Web site to learn more.)
Make sure your elected officials know you support incentives for renewables to help hasten a cleaner energy future for us all.