Incentive Type:

Personal Tax Credit

Eligible Renewable/Other Technologies:

Solar Water Heat, Photovoltaics, Fuel Cells, Other Solar Electric Technologies

Applicable Sectors:

Residential

Amount:

30%

Maximum Incentive:

$2,000 for solar electric and solar water heating; $500 per 0.5 kW for fuel cells

Carryover Provisions:

Excess credit may be carried forward to succeeding tax year.

Eligible System Size:

Not specified

Equipment/Installation Requirements:

Solar water heating property must be certified by SRCC or by comparable entity endorsed by the state. At least half the energy used to heat the dwelling's water must be from solar in order for the solar water heating property expenditures to be eligible.

Authority 1:

26 USC § 25D

Date Enacted:

8/8/2005

Effective Date:

1/1/2006

Expiration Date:

12/31/2008

Summary:

Incentive Type:

Corporate Exemption

Eligible Renewable/Other Technologies:

Solar Water Heat, Solar Space Heat, Photovoltaics

Applicable Sectors:

Residential, Multi-Family Residential

Amount:

100% of the subsidy

Terms:

Applies to energy conservation measures on dwelling units only

Website:

http://www.irs.gov/publications/p525/index.html

Authority 1:

26 USC § 136

Incentive Type:

Federal Grant Program

Eligible Efficiency Technologies:

Yes; specific technologies not identified

Eligible Renewable/Other Technologies:

Solar Water Heat, Solar Space Heat, Photovoltaics, Wind, Biomass, Geothermal Electric, Geothermal Heat Pumps, Hydrogen, Direct-Use Geothermal, Anaerobic Digestion, Renewable Fuels, Fuel Cells using Renewable Fuels

Applicable Sectors:

Commercial, Agricultural

Amount:

Grants: 25% of eligible project costs; Guaranteed loans: 50% of eligible project costs (pending)

Max. Limit:

Grants: $500,000 per renewable-energy project; Guaranteed loans: $10 million

Website:

http://www.rurdev.usda.gov/
rd/farmbill/9006resources.html

Authority 2:

Farm Security And Rural Investment Act of 2002 (Sec. 9006)

Date Enacted:

5/13/02

Effective Date:

FY 2003

Expiration Date:

FY 2007

Authority 3:

Renewable Energy Systems and Energy Efficiency Improvements Program (Final Rule)

Effective Date:

7/18/05

Section 9006 of the 2002 Farm Bill requires the U.S. Department of Agriculture (USDA) to create a program to make direct loans, loan guarantees, and grants to agricultural producers and rural small businesses to purchase renewable-energy systems and make energy-efficiency improvements. This program is known as the Renewable Energy Systems and Energy Efficiency Improvements Program.  
 
The maximum grant award is 25% of eligible project costs up to $500,000 for renewable energy projects and up to $250,000 for energy efficiency improvements. Assistance to one individual or entity is not to exceed $750,000. The minimum grant request is $2,500 for renewable energy projects and $1,500 for efficiency projects. Eligible renewable energy projects include wind, solar, biomass and geothermal; and hydrogen derived from biomass or water using wind, solar or geothermal energy sources. Applications must be submitted to the appropriate Rural Development State Office.  
 
Under the guaranteed loan option, funds up to 50% of eligible project costs (with a maximum project cost of $10 million) are available. The minimum amount of a guaranteed loan made to a borrower is $5,000. A combined grant and guaranteed loan under this program cannot exceed 50% of eligible project costs, and the applicant or borrower is responsible for having other funding sources for the remaining funds. The maximum percentage of guarantee ranges from 70% to 85% depending on the loan value; the percentage for a given project will be negotiated between the lender and the Rural Business-Cooperative Service. The interest rate will be negotiated between the lender and the applicant and the repayment term must not exceed 30 years for real estate, 20 years for machinery and equipment, and seven years for working capital.  
 
The USDA has implemented this program through a Notice of Funds Availability (NOFA) for each of the last three years. The latest round of funding was made available in February 2006.  
 
Click here for the 2006 Notice Of Funds Availability. The amount available for competitive grants is $11.385 million. Approximately $176.5 million in guaranteed loan authority is also available. Any guarantee loan funds that are not obligated by August 1, 2006, will be pooled and revert to the National Office reserve for grant use.  
 
The selection of 150 applicants to receive almost $21 million in grant assistance was announced in September 2005. Future grant and loan guarantee opportunities will be announced and made according to the final rule governing the program effective July 18, 2005 (see link above).  
 
The USDA will determine each year if direct loan funds are available. If funds are available, a NOFA will appear in the Federal Register.

Incentive Type:

Corporate Tax Credit

Eligible Renewable/Other Technologies:

Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics, Geothermal Electric, Fuel Cells, Solar Hybrid Lighting, Direct Use Geothermal, Microturbines

Applicable Sectors:

Commercial, Industrial

Amount:

For equipment placed in service from January 1, 2006 until December 31, 2008, the credit is 30% for solar, solar hybrid lighting, and fuel cells, and 10% for microturbines. The geothermal credit remains at 10%.

Maximum Incentive:

$500 per 0.5 kW for fuel cells; $200 per kW for microturbines; no maximum specified for other technologies

Eligible System Size:

Microturbines less than 2 MW; fuel cells at least 0.5 kW

The Energy Policy Act of 2005 (H.R. 6) expanded the business energy tax credit for solar and geothermal energy property to include fuel cells and microturbines installed in 2006 and 2007 and to hybrid solar lighting systems installed on or after January 1, 2006. These provisions of the tax credit were later extended through 2008 by Section 207 of the Tax Relief and Health Care Act of 2006 (H.R. 6111). (A 10% federal energy tax credit was available to businesses that invested in or purchased solar or geothermal energy property in the United States prior to January 1, 2006.)  
 
For eligible equipment installed from January 1, 2006 through 2008, the credit is set at 30% of expenditures for solar technologies, fuel cells and solar hybrid lighting; microturbines are eligible for a 10% credit during this two-year period. For equipment installed on or after January 1, 2009, the tax credit for solar energy property and solar hybrid lighting reverts to 10% and expires for fuel cells and microturbines. The geothermal credit remains unchanged at 10%.  
 
The credit for fuel cells is capped at $500 per 0.5 kW of capacity. The maximum microturbine credit is $200 per kW of capacity. No maximum is specified for the other technologies.  
 
Solar energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. Hybrid solar lighting systems are those that use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Geothermal energy property includes equipment used to produce, distribute, or use energy derived from a geothermal deposit. It does NOT include geothermal heat pumps. For electricity produced by geothermal power, equipment qualifies only up to, but not including, the electrical transmission stage. Energy property does not include public utility property, passive solar systems, or pool heating equipment.  
 
To qualify, the original use of the equipment must begin with the taxpayer or it must be constructed by the taxpayer. The equipment must also meet any performance and quality standards in effect at the time the equipment is acquired. The energy property must be operational in the year in which the credit is first taken.  
 
If the project is financed in whole or in part by subsidized energy financing or by tax-exempt private activity bonds, the basis on which the credit is calculated must be reduced. (The formula is described in the tax credit instructions.) Subsidized energy financing means "financing provided under a federal, state, or local program, a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy." Therefore, a business must reduce the basis for calculating the credit by the amount of any such incentives received.

Energy efficient mortgages (EEMs) can be used by homeowners to finance a variety of energy efficiency measures, including renewable energy technologies, in a new or existing home. The federal government supports these loans by insuring them through FHA or VA programs. This allows borrowers who might otherwise be denied loans to pursue energy efficient improvements, and it secures lenders against loan default and provides them with confidence in lending to customers whom they would usually deny.  
 
The federal government also certifies private lenders to provide EEMs through the ENERGY STAR program, which does not provide the same security as the FHA or VA programs but offers ENERGY STAR certification. Other private lenders, like Fannie Mae and Freddie Mac, offer “conventional energy efficient mortgages” that may or may not require homes to meet Energy Star standards.  
 
Federal Housing Authority (FHA) Energy Efficient Mortgages  
The FHA allows lenders to add up to 100% of energy efficient improvements to an existing mortgage loan by insuring a loan of up to 5% of a home’s appraised value or $4,000, whichever is greater, not to exceed $8,000. FHA mortgage limits vary by county/state and the number of units in a dwelling; see www.fha.com/lending_limits.cfm for more details.  
 
Loan amounts cannot be greater than the projected savings of the energy efficient improvements. This loan can be combined with FHA 203 (h) mortgages made to victims of presidentially-declared disasters and with financing offered through the FHA 203 (k) rehabilitation program. FHA loan limits do not apply to the EEM. Homebuyers must submit a Home Energy Rating (HER), contractor bids, and a FHA B Worksheet. Up to $200 of the cost of the HER can be included in the mortgage, and borrowers can include closing costs and the up-front mortgage insurance premium in the total cost of the loan. The loan is available to anyone who meets the income requirements for FHA’s Section 203 (b), provided they can make the monthly mortgage payments. New and existing owner-occupied homes of up to 2 units qualify for this loan. Cooperative units are not eligible. Homebuyers can submit applications to their local HUD Field Office through an FHA-approved lending institution, or they can apply directly online at http://www.fha.com/energy_efficient.cfm. See also www.hud.gov/offices/hsg/sfh/eem/energy-r.cfm.  
 
Department of Veterans Affairs (VA) Energy Efficient Mortgages  
The VA insures EEMs to be used in conjunction with VA loans for either the purchase of existing dwellings or refinancing loans secured by the dwelling. Homebuyers can borrow up to $3,000 if only documentation of improvement costs or contractor bids is submitted, or up to $6,000 if the projected energy savings are greater than the increase in mortgage payments. Loans may exceed this amount at the discretion of the VA. Applicants cannot include the cost of their own labor in the total amount. No additional home appraisal is needed but applicants must submit a HER, contractor bids, and other documentation. The VA insures 50% of the loan if taken by itself, but it may insure less if the total value of the mortgage exceeds a certain amount.  
 
This mortgage is available to qualified military personnel, reservists and veterans (see www.homeloans.va.gov/elig2.htm for more details). Applicants should secure a certificate of eligibility from their local lending office and submit it to a VA-approved private lender. If the loan is approved, the VA guarantees the loan when it is closed.  
 
ENERGY STAR Energy Efficient Mortgages  
These mortgages, unlike those insured by the FHA and VA, are not guaranteed by a particular federal agency. At the time of this writing, the Environmental Protection Agency’s ENERGY STAR program listed 49 private lenders who offer homebuyer assistance, home energy rating assistance, special financing, and other assistance to applicants buying homes with the ENERGY STAR rating. The EPA requires ENERGY STAR-approved lenders who offer FHA EEMs to provide those to qualified borrowers. Borrowers should apply directly to those lenders listed on the ENERGY STAR website.  
 
Conventional Energy Efficient Mortgages  
Like ENERGY STAR , conventional mortgages are not backed by a federal agency. Private lenders sell loans to Fannie Mae and Freddie Mac, which in turn allow homebuyers to borrow up to 15% of an existing home’s appraised value for improvements documented by a HER.  
 
Fannie Mae also lends up to 5% for ENERGY STAR new homes. Fannie Mae EEMs are for single-family, owner-occupied units, and they provide EEMs to those whose income might otherwise disqualify them from receiving the loans by allowing approved lenders to adjust borrowers’ debt-to-income ratio by 2%. The value of the improvements is immediately added to the total appraised value of the home.  
 
Freddie Mac offers EEMs for 1-4 unit dwellings and also helps raise the effective income of the borrower to qualifying levels by allowing lenders to increase the borrower’s income by a dollar amount equal to the estimated energy savings. Any energy efficiency improvements can qualify, and these mortgages can be combined with both fixed-rate and adjustable-rate mortgages. Borrowers should apply directly to the lender. See www.natresnet.org/resources/lender/default.htm for more detail

Incentive Type:

Personal Exemption

Eligible Renewable/Other Technologies:

Solar Water Heat, Solar Space Heat, Photovoltaics

Applicable Sectors:

Residential, Multi-Family Residential

Amount:

100% of subsidy

Website:

http://www.irs.gov/publications/p525/index.html

Authority 1:

26 USC § 136 (2005)

 
According to Section 136 of the IRS Code, energy conservation subsidies provided by public utilities, either directly or indirectly, are nontaxable: "Gross income shall not include the value of any subsidy provided (directly or indirectly) by a public utility to a customer for the purchase or installation of any energy conservation measure."  
 
Energy conservation measure includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand.  
 
Dwelling unit includes a house, apartment, condominium, mobile home, boat, or similar property. If a building or structure contains both dwelling and other units, any subsidy must be properly allocated.  
 
Given the definition of "energy conservation measure" there is strong evidence that utility rebates for residential solar thermal and solar electric projects may be nontaxable. However, the IRS has not ruled definitively on this issue. For taxpayers considering using this provision for renewable energy systems, consultation with a tax attorney is advised.  
 
Other types of utility subsidies that may come in the form of credits or reduced rates may also be nontaxable:  
 
"Utility rebates. If you are a customer of an electric utility company and you participate in the utility’s energy conservation program, you may receive on your monthly electric bill either: a reduction in the purchase price of electricity furnished to you (rate reduction), or a nonrefundable credit against the purchase price of the electricity. The amount of the rate reduction or nonrefundable credit is not included in your income." (IRS Publication 525)