Top 4 Energy Tax Credits For Investors

Ever since the American Recovery and Reinvestment Act (ARRA) was enacted in February, business owners, executives and homeowners alike have been wondering whether these tax incentives, rebates and …

Ever since the American Recovery and Reinvestment Act (ARRA) was enacted in February, business owners, executives and homeowners alike have been wondering whether these tax incentives, rebates and refunds will benefit them. And they should. The ARRA contains $94 million in grants, incentives and loans for green technology projects and companies. It also includes $16.5 billion in renewable energy federal tax incentives, $4 billion in Clean Renewable Energy and Energy Conservation bonds and nearly $26 billion invested in energy efficient solutions and projects.

Despite being one of the largest energy-saving pushes by the federal government, the ARRA is only a drop in the bucket when it comes to the perks available for sustainable-minded people. There’s only one problem, however. As the incentives, tax breaks and rebates mount many consumers are becoming more and more confused by all the rules and regulations.

Clay Crownover, a policy manager with the Alliance to Save Energy, which is a non-profit organization dedicated to sustainability, knows that there can be many facets involved when qualifying for certain energy-saving programs. He also knows that people should not be discouraged from seeking these credits and rebates simply because they don’t know where to begin. Another reason Crownover implores people to not give up is because he believed an investment in energy savings is a direct investment back into one’s home, business or building. That’s on top of all the great programs out there that can ease the costs of these green improvements. “Investing in energy efficiency is investing in your business,” he said. “By investing in energy efficiency, you are freeing up capital through energy cost savings that you ultimately can put back into your business, reducing your operating costs and probably giving you the ability to hire more people.”

Crownover also understood that now is a difficult time for the average American or small business owner to pool extra money for nonessential improvements and repairs. “Up-front costs and cash flow problems can sometimes be a problem with the small business owner,” he said. “[But] the savings generated over time make it a worthwhile investment.”

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Though there are numerous programs out there at every level, from small neighborhood incentives to huge federal discounts, NuWire highlighted four of the most popular and, in some cases, beneficial programs to the average investor who may be looking to go green – and save some money.

Home Improvements

Homeowners can easily cash in on some of the ARRA’s credits by making minimal home repairs that replace energy-sucking products with their more efficient counterparts. Ever thought about installing sky lights or storm windows in your home? What about weather stripping, caulking or foam sealants? Has your air conditioner, furnace, water heater or boiler recently broken down? Now’s the time to act on any of the above upgrades or repairs. Not only will you receive an income tax credit of up to $1,500, but you’ll also significantly reduce your energy bills, sometimes by up to 50%. This credit allows homeowners to claim 30% of their energy-saving costs, which often includes both installation and product costs. It’s available until December 31, 2010, so you have time to act on it. Simply keep all your receipts and manufacturer’s warranties for these energy-saving products, and file IRS Form 5695 along with your taxes.

Tax Deductions for Commercial Buildings

Developers and investors who are planning to retrofit or erect an energy-efficient building before December 31, 2013, can save nearly $2 per square foot through the Energy Policy Act of 2005. This act allows projects that reduce a building’s heating and cooling needs by 50% – according to standards set forth by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) – to save between 30 cents and $1.80 per square foot. Energy-reducing savings can not only be found in the traditional heating and cooling systems via use of mass flowmeters, but in interior lighting, ventilation and hot water systems as well. To receive this tax credit your project must obtain certification. The certification process is outlined in IRS Notice 2006-52 (hyperlink: http://www.irs.gov/pub/irs-drop/n-06-52.pdf).

Business Energy Investment Tax Credit (ITC)

Another tax credit that is part of the ARRA, the ITC credit is for business owners who install energy-generating systems. Though this may sound impractical and tedious, it’s not as out there as you may think. This credit includes the installation and utilization of solar energy, such as solar panels and hybrid lighting systems, as well as fuel cells, small wind turbines and geothermal systems like heat pumps. The installation of a geothermal system will net you a tax credit that is equal to 10% of your expenditures, while the tax credit for fuel cells, small wind turbines and solar energy alternatives is 30% of your expenditures, with no maximum cap. As of press time, these credits have no expiration dates. To apply for this tax credit, fill out IRS Form 3468.

Residential Energy Conservation Subsidy Exclusion

If you own any type of housing you can qualify for the Residential Energy Conservation Subsidy Exclusion. Many public utility companies offer subsidies to clients who install renewable energy mechanisms, such as solar thermal and solar electric products. These products not only reduce that housing entity’s energy requirements, but it also lessens its presence on power grids. These subsidies, whether provided directly to the individual in the form of a refund, or indirectly in the form of a discount, are nontaxable. They apply to most dwellings, including single-family and multi-family homes, condos, apartments, boats and mobile homes. See IRS Publication 525 for further guidelines on this subsidy.

In addition to these federal incentives, there are many other programs at the state and local levels that can enhance your home’s, building’s or business’ value if you invest in energy-saving solutions. For a list of incentives by industry, state or product visit the Database of State Incentives for Renewables & Efficiency (DSIRE) at www.dsireusa.org. Crownover also has his own list for owners and investors who are looking for more information on the latest incentives. “You can visit …our Web site at www.ASE.org, or contact your tax advisor,” he said. “You could also easily visit the Tax Incentive Assistance Project [www.energytaxincentives.org] that is updated regularly regarding new information on the incentives…The federal government’s Energy Star Web site [www.EnergyStar.gov] also provides updated information on new and existing credits.”

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