Take advantage of energy  tax incentives Now!!
By Matt Siegel, Director of WNC Green Building Council

The tax credit for builders for energy efficient new homes and the federal renewable energy tax credits expire at the end of 2008, so now is the time to invest in energy.

First, what is the difference between a tax credit and a tax deduction?
A tax deduction is an amount you are able to “deduct” from your total income in order to decrease your tax liability or the amount of tax you will owe the government. For example, if you make $30,000/year and you get a $2,000 tax deduction for purchasing a hybrid vehicle, you will only be taxed on $28,000 worth of income. So depending on your tax bracket, that might mean you owe $200 to $500 less in taxes.

A tax credit is an amount of money that is subtracted from the amount of actual tax you owe after all of your deductions have been figured in. For example, if after your taxes have been figured, you owe $2,000 in taxes to the state government and you qualify for a tax credit of $1,500, you will only have to send the state $500.

Therefore a tax credit is much more valuable than a tax deduction.

What kinds of tax credits are available for Renewable Energy?

Residential:

The State of North Carolina offers a 35% tax credit up to $1,400 for water heating, $3,500 for active and passive solar space heating, and $10,500 for photovoltaic, wind and hydroelectric systems. The credit can be taken over six years. The federal government offers a 30% tax credit for solar equipment up to $2,000.

For example, if you spent $4,000 on a solar hot water heating system, you would receive a $1,400 tax credit from state of NC and a $1,200 tax credit from the federal government.  You would have to pay some federal tax on the $1,400 state credit- approximately $350 if you are in the 25% tax bracket.  That means purchasing a solar water heater would only cost $1,750.

If you were to spend $10,000 on a 1 kW PV system, you would receive a $3,500 tax credit from state of NC and a $2,000 tax credit from the federal government.  You would have to pay some federal tax on the $3,500 state credit- approximately $875 if you are in the 25% tax bracket.  That means purchasing that solar PV system  would only cost $5,375. This system would also generate $275 in electricity annually if sold to NC Green Power.

Commercial:

For commercial business properties there are virtually no limits on tax credits taken. The 35% North Carolina tax credit can be applied to PV, solar thermal for water heating, pool heating and space heating as well as passive space heating and daylighting. The NC tax credit also applies to an array of other renewable energy resources. The NC credit is taken over five years. The Federal tax credit of 30% applies to solar technologies including PV, solar hybrid lighting and solar thermal for electricity generation, process heat, space heating and water heating. The other major tax incentive for commercial installations is the accelerated depreciation on the solar equipment (MACRS).Below is a breakdown of the potential economics of a commercial PV systems over five years:

Assume 25% tax bracket, company is able to use the tax credits in five years

$100,000 (initial cost for an 11 kW system)
- $30,000 (30% federal tax credit)
- $35,000 (35% NC tax credit)
- $25,000 (value of MACRS over 5 years)
+ $8,750 ( federal tax on NC tax credit)
- $14,755 (generated income for electricity through NC Green Power @ .21/kWh over 5              years)
----------------
$3,995 (Total remaining initial investment after 5 years)


What kinds of tax credits are available for home energy efficiency?

Contractors of new homes are eligible for a $2,000 tax credit if their home is certified by a Home Energy Rater to be 50% more efficient than the 2004 International Energy Code.   This credit is available per home and is a part of the general business credit.
This is a difficult credit to achieve put possible and the benefits of a 50% reduction of energy use are long lasting for homeowners and the environment.

*** The WNCGBC encourages anyone interested in taking advantage of these tax incentives to consult with your tax accountant to find out about your unique tax situation. ***