Go Green for Green

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The American Recovery and Reinvestment Act of 2009 includes two tax credits that reimburse homeowners up to 30% of the costs of qualifying energy-saving projects.  These credits are called The Residential Energy Property Credit (REPC) and the Residential Energy Efficiency Property Credit (REEPC).  In an earlier column I discussed the REPC, which reimburses homeowners for 30% of the costs (up to a total, nonrefundable credit of $1,500) of installing qualifying roofing, water heaters, HVAC systems, doors, windows, insulation and bio-mass stoves.  Today I’ll review the Residential Energy Efficiency Property Credit.  If all goes well, you’ll learn how you can help the environment, cut your energy bill, and have Uncle Sam pay you to do it.

The REEPC (also called the Residential Renewable Energy Tax Credit) will reimburse taxpayers for installing certain “green” energy systems in their new or existing homes.  Actually, the credit has existed for some time, but the 2009 Recovery Act made some substantial, taxpayer-benefiting improvements.  In its current form, the credit provides a nonrefundable (meaning it only pays you to the extent of your tax liability), unlimited reimbursement for 30% of costs incurred to purchase and install any of the following systems between January 1st 2009 and December 31st 2016: solar electric, solar water heating, wind-energy, and geothermal heat pump equipment.  The credit also extends to fuel cell property, although the 30% credit maxes out at $500 per half kilowatt generated by the system. 

The credit applies to qualifying systems installed in the taxpayer’s primary residence, whether a new or existing home. With the exception of fuel cells, the credit can also be claimed for systems installed in a taxpayer’s second residence or vacation home. 

Labor costs for site preparation and installation can be included when calculating the credit.  As mentioned earlier, the credit is nonrefundable but, unlike the Residential Energy Property Credit (REPC), any unused REEPC can be carried forward to the following year’s tax return.  It remains uncertain, however, whether any unused credit can be carried forward beyond the 2016 deadline. 

Below is a brief description of each major type of qualifying technology, the cost of installation, and saving for the average area homeowner.  A special thanks to Mike McKechnie of Mountain View Solar and Wind for supplying this information. 

Small wind-energy systems.  Such systems convert wind into usable electricity by placing a wind generator in a high enough position (60 to 100 feet) to capture non-turbulent, straight-line wind.  The wind spins blades attached to the generator which, in turn, generates electricity.  Wind generator’s cost about $26,000 (before tax incentives) and can reduce the average household electric bill by 20-45%. 

Solar-electric systems.  These systems collect the sun’s energy via solar “photovoltaic” panels which create DC power.  The DC power is then converted to AC power and fed into the home’s electric panel.  The only caveat is that homes utilizing the sun as a power source must have southern sky exposure.  The average system occupies 140-180 square feet, costs between $20,000 and $45,000 (before tax credits), and can reduce the average home owner’s electric bill by 20-50%. 

Solar-water heaters.  These systems use the sun’s energy to heat a fluid located inside a solar collector.  This fluid then heats the water inside the home’s hot water tank.  Solar units occupy 50 to 75 square feet and require unencumbered southern sky exposure (via the roof or yard).  An average-sized unit costs between $8,500 and $10,000 dollars before credits and reduce electric costs by 12% to 22%.  To qualify for the credit, half of the home’s water-heating energy must come from the sun.  The credit does not extend to systems used to heat swimming pools or hot tubs.

Geothermal Heat.  A geothermal system utilizes the Earth’s constant temperature of 55-58 degrees to heat and cool your home.  It works with large and small lots (even townhouse-size), reduces heating and cooling costs by 10-60% and costs $30,000 to $45,000 before tax incentives.

A final note: To claim the credit you must obtain a Manufacturer Certification Statement from the equipment’s manufacturer.  Systems that lack this certification do not qualify for the credit.  Be sure to keep the certificate (along with all receipts for purchase and installation) to substantiate your credit.

The cost of “green” energy may seem higher than simply plugging into the power grid.  Over time, however, reduced electric bills can make renewable energy comparable, if not cheaper, than traditional forms of energy.  To learn more about these credits, log onto energysavers.gov, energystar.gov, or call our office.  For more information on the systems themselves contact Mike McKechnie of Mountain View Solar and Wind at (304) 258-4733 or on the web at http://www.mtvsolar.com.

Brett Hersh's avatar
  • Author: Brett Hersh
  • Bio: Brett Hersh, EA, MBA, is the owner of HBS TAX & Small Business Experts. He is an Enrolled Agent (EA) with the IRS and licensed by the US Treasury Department to prepare all tax returns and represent taxpayers before the IRS for audits, collections and appeals. He is also Dave Ramsey’s ELP for Tax and Accounting, a continuing education instructor for tax professionals through Lorman Education, and a local speaker/presenter on the topics of tax and business growth. He can be reached at (304) 267-2594.