USA Federal Incentives for Renewable Energy

Personal Tax Credits Available for Residential Alternative Energy

May 28, 2009

Since the Energy Policy act of 2005, the US government has increased incentives for solar, wind, geothermal and fuel cell power. Limits were erased beginning in 2009.

Many states in the USA offer incentives for renewable energy installations. Some are certainly better than others. Since 2005, federal tax breaks have been available in the United States for certain types of residential renewable energy.

According to the Database of State Incentives for Renewables & Efficiency, or DSIRE, the Energy Policy Act of 2005 established incentives for solar electric, solar water heat and fuel cells. Until 2009, the incentive was a 30 percent credit of qualifying expenditures, and there was a $2,000 limit.

In 2008, legislators continued the tax incentives for eight more years. The Energy Improvement and Extension Act of 2008 also removed the $2,000 limit for solar electric systems starting in 2009. This is significant considering the high cost of photovoltaic systems.

The Act also provides incentives for other renewable sources. Small wind energy installations can now receive credits. Also, geothermal heat pumps, generally recognized as one of the most efficient home heating systems available, are eligible for credit.

In 2009 Congress increased tax credits further. The American Reinvestment and Recovery Act of 2009 removed the $2,000 limit on the tax credit for all systems except fuel cells.

Perhaps a more sweeping change brought about by this act is the repeal of restrictions for the tax credit if used on projects that also received "subsidized energy financing". Subsidized energy financing is essentially any federal, state local, or tax-free privately funded subsidized financing for efficiency improvements or energy production.

Energy Tax Credit Rules and Regulations

For most systems installed after 2009, the tax credit is 30 percent of eligible expenditures for a residential dwelling in the United States with no maximum. Fuel cells, however, must be rated at a minimum of one half kilowatt minimum and be 30 percent efficient. There is a $500 maximum credit per half kilowatt of fuel cell power, and the cells must be installed in the owner's primary residence.

For solar electric and water heat power installed during 2006 through 2008, the maximum credit is $2000. If the equipment was installed after 2009, there is no limit. Solar water heating equipment must be certified by the Solar Rating Certificate Corporation or other government certified entity to qualify for credit. Solar equipment need not be installed on a primary residence to be eligible.

Like solar, geothermal heat pump systems have no maximum credit if installed after 2009. To be eligible for any credit, these systems must have been installed after January 1, 2008. They must also meet Energy Star requirements in effect when the installation is completed. Installation need not be at the tax payer's primary residence.

Wind power is credited at a maximum of $500 per half kilowatt up to 8 kilowatts on installations completed after January 1, 2008. Wind power can also receive credit if not installed on the primary residence.

Depending on location, state incentives may also be available. Combined with utility purchase of excess power generated, payback periods for many systems are starting to drop. With continued support from government, the price of alternative energy should continue to fall.

The copyright of the article USA Federal Incentives for Renewable Energy in Energy Conservation is owned by Justin Novak. Permission to republish USA Federal Incentives for Renewable Energy in print or online must be granted by the author in writing.