Federal Tax Credits Available for Solar and Energy Efficiency Starting
The Energy Policy Act of 2005 (EPAct 2005) provides new
tax incentives for a number of solar & energy efficiency measures,
including:
§
Tax
credits for residential and commercial solar photovoltaic and hot water
heating systems
§
Tax
deductions for highly efficient commercial buildings
§
Tax
credits for highly-efficient new homes
§
Tax
credits for improvements to existing homes including high-efficiency air
conditioners and equipment
§
Tax
credits for residential fuel cell systems
§
Tax
credits for fuel cell and microturbines used in a business
§
Tax credits for fuel-efficient vehicles
What are
Tax Credits and Tax Deductions?
There is an important
difference between a tax deduction and a tax credit. A tax deduction is
subtracted from income before total tax liability is computed. On the other
hand, a tax credit is subtracted directly from the total tax liability.
This means that a deduction and a credit have very different values, with a
credit being 3 or more times more advantageous to the taxpayer than a
deduction. For example, a tax credit of $1,000 for someone in the 28% tax
bracket is equivalent to a tax deduction of $3,571.
Tax Credits for Solar Photovoltaics and Water Heating
Systems
Federal tax credits are available for residential and commercial solar
energy systems placed in service between January 1, 2006 and December 31, 2008.
Residential Tax Credits – For solar water heaters and solar
electric (PV) systems, the tax credit is 30% of the equipment and installation
cost, with a maximum tax credit of $2,000.
Commercial Tax Credits – For solar water heaters, solar electric
(PV) systems, and solar hybrid lighting, the tax credit is 30% of the equipment
and installation cost, with no maximum limit.
To be eligible for the solar hot water system tax credit, the system
must be certified by the Solar Rating and Certification Corporation (SRCC) and
produce 50% or more of the hot water needed by the residence. There is no qualification
provided for PV systems. Individuals may claim tax credits for either or both
types of solar systems.
Energy
Efficient New Homes
This provision offers
homebuilders a tax credit of $2,000 for homes that reduce energy use for
heating and cooling only (not hot water) by 50% compared to the national model
code — the 2004 IECC Supplement (assuming an SEER-13 air conditioner).
Producers of manufactured homes can also choose to qualify for a tax credit of
$1,000 for homes that save 30%. This $1,000 credit for reaching 30% savings is
not available for site built homes, which must reach the 50% savings tier to
qualify for the $2,000 credit.
Eligible
homes must demonstrate savings using software that has been approved by DOE and
builders must demonstrate compliance by the use of third-party inspectors
certified according to DOE rules. While no interim rules have yet been
promulgated to meet these requirements, similar standards exist in
Energy
Efficiency Improvements for Existing Homes
These provisions
offer cost-based incentives of 10% of the amount expended by the taxpayer for
"Qualified Energy Efficiency Improvements," up to $300 for
"Qualified Energy Property." The maximum credit limit per home is $500
for 2006-2007.
"Qualified
Energy Efficiency Improvements" are specifically defined as:
"Qualified Energy Property" is defined as:
Credit
limitations on qualified energy property are as follows:
The
incentives apply to improvements and equipment placed in service during
2006-2007.
Fuel-Efficient Passenger and Commercial Vehicles
Tax
credits are available for a range of vehicles, mainly those with
hybrid-electric or diesel engines. Tax credit amounts are based on a complex
formula and will be available for vehicles placed in service after January 1,
2006. The credits are available for both passenger and commercial vehicles and
will be phased out over time for each auto manufacturer after they sell 60,000
qualifying vehicles. The vehicle tax credits will end for vehicles placed in
service after December 31, 2010.
Source: This
fact sheet adapted from the
www.fsec.ucf.edu/epact-05.htm and the Tax Incentives Assistance Project.
For more information
Tax Incentives Assistance Project – www.energytaxincentives.org