Incentives

State and Utility Incentives

Federal Tax Incentives

Introduction

The Energy Policy Act of 2005 created a new round of tax incentives for both the mobile (vehicle) and stationary (building) energy user markets. Although passed in 2005, it was well into 2006 before many of the ‘Rules’ (tax guidance) came out for non-residential users and certain things are still unclear as of this writing. Use the web links on this page to obtain details and keep informed of clarifications as they become available.

There are 18 different ‘Titles’ in HR 6-2005. Title XIII Energy Policy Tax Incentives is the part that is applicable to buildings and end-users. Qualifying measures are eligible for up to $1.80 per square foot of building when placed into service after December 31, 2005 and before December 31, 2008 (a one year extension on the original Act). This is a DEDUCTION of tax liability, which is not as valuable as the other type of incentive often offered, the Tax Credit. The Bill includes both Credits and Deductions for different categories.

In our opinion, this is not enough incentive to turn a bad project into a ‘go’ but if someone is doing it anyway, this adds additional return and should more than cover the cost to comply with filing for the incentive. Yes, there is a cost and requirement to comply, as the measure must be verified by an independent auditor/consultant; the implication is that this person/party cannot be an employee of the company claiming the measure or installing the measure (this is one of the uncertain parts) and must be certified by the Treasury Department.

Eligible measures include interior lighting, heating, cooling, ventilation, hot water and building envelope measures that exceed building code requirements.

Some Details
The following information is excerpted from http://www.energy.gov/taxbreaks.htm in August 2006:

About Tax Credits

A tax credit is generally more valuable than an equivalent tax deduction because a tax credit reduces tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. Beginning in tax year 2006, consumers will be able to itemize purchases on their federal income tax form, which will lower the total amount of tax they owe the government.

Home Energy Efficiency Improvement Tax Credits

Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in the home can receive a tax credit of up to $500 beginning in January 2006.

The EPACT also provides a credit equal to 30% of qualifying expenditures for purchase for qualified photovoltaic property and for solar water heating property used exclusively for purposes other than heating swimming pools and hot tubs. The credit shall not exceed $2000.

Improvements must be installed in or on the taxpayer’s principal residence in the United States. Home improvement tax credits apply for improvements made between January 1, 2006 and December 31, 2007.
Business Tax Credits

Businesses are eligible for tax credits for buying hybrid vehicles, for building energy- efficient buildings, and for improving the energy efficiency of commercial buildings (as outlined in the Energy Policy Act of 2005).

Energy-efficient Commercial building deduction. This provision allows a tax deduction for energy-efficient commercial buildings that reduce annual energy and power consumption by 50% compared to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) 2001 standard. The deduction would equal the cost of energy-efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. Additionally, a partial deduction of 60 cents per square foot would be provided for building subsystems.

More Information
IRS Home Page www.irs.gov

DOE Primary site on tax incentives: http://www.eere.energy.gov/buildings/info/tax_credit_2006.html

Note that these specific URLs often change; therefore, these links may only get you ‘close’ to this information and an additional search may be required once you reach the web site:

For Residential end-users: http://www.irs.gov

Commercial building end-users: http://www.irs.gov

TIAP: http://www.energytaxincentives.org (All classifications)

Commercial Building Tax Deduction Coalition: http://www.efficientbuildings.org

There are also links from some of the above sites to several other sites that include renewable energy, mobile end-use, on-site power production and other Titles/elements of the Bill.