Overview Of Tax Credits For The Consumer

What tax credits are available for renewable energy and energy efficiency?

NCSEA receives this question often, and this page is the first step in getting all of your answers.

Please note that NCSEA cannot offer you tax advice, but this information should be useful when consulting with your hired tax professional.

ANSWERS TO MOST FREQUENT QUESTIONS

The Database of State Incentives for Renewables & Efficiency (DSIRE) ¹ is recognized nationally as the comprehensive source of information on state, local, utility, and federal incentives that promote renewable energy and energy efficiency. It is the premier resource for incentive research.

Now is the time to install a solar water heating or photovoltaic system on your home. The combination of North Carolina’s renewable energy tax credit and the Federal government’s solar tax credit ²makes these residential solar technologies more affordable. The NC Solar Center ³can provide detailed information about North Carolina’s renewable energy tax credit.

Residential Solar Tax Credit Summary

Tax Credit Details North Carolina Tax Credit Federal Tax Credit Eligible Solar Technologies: Solar Water Heating
Photovoltaics
Solar Pool Heating
Active Solar Space Heating
Passive Solar Space Heating
Solar Water Heating
Photovoltaics Credit Amount: 35% of the installed cost 30% of the installed cost Maximum Credit: $1,400: solar water heating; pool heating
$3,500: active & passive space heating; combined space and water heating systems
$10,500: photovoltaics
$2,000: solar water heating;
$2,000: photovoltaics Eligibility: Equipment placed in service through 2010 Equipment placed in service in 2006 & 2007 Instructions: Guidelines for NC Tax Credit⁴ IRS Notice 2006-26⁵

NORTH CAROLINA INCENTIVES FOR RENEWABLES AND EFFICIENCY

Information for all incentives is found at the North Carolina DSIRE⁶ web page.

North Carolina incentives for renewable energy and energy efficiency range from personal tax credits to reduced rate loans. Highlights include:

Personal Tax Credit⁷

Renewable-energy equipment expenditures eligible for the tax credit⁸ include the cost of the equipment and associated design; construction costs; and installation costs less any discounts, rebates, advertising, installation-assistance credits, name-referral allowances or other similar reductions.

Under North Carolina's tax code, the allowable credit may not exceed 50% of a taxpayer's liability for the year, reduced by the sum of all other credits. Single-family homeowners who purchase and install a qualifying renewable-energy system must take the maximum credit amount allowable for the tax year in which the system is installed. If the credit is not used entirely during the first year, the remaining amount may be carried over for the next five years.

For all other taxpayers, the credit is taken in five equal installments beginning with the year in which the property is placed in service. If the credit is not used entirely during these five years, the remaining amount may be carried over for the next five years. The credit can be taken against franchise tax, income tax or, if the taxpayer is an insurance company, against the gross premiums tax.

NC GreenPower Production Incentive⁹

NC GreenPower¹⁰ , a statewide green-power program designed to encourage the use of renewable energy in North Carolina, offers production payments for grid-tied electricity generated by solar, wind, small hydro (10 megawatts or less) and biomass resources. Payment arrangements for electricity generated by most renewable-energy systems are available through a periodic request for proposals process.

Owners of small solar-energy systems and small wind-energy systems (10 kilowatts or less) may apply to receive program incentives at any time. Owners of small solar-energy systems or wind-energy systems are encouraged to review, fill out and return a one-page application¹¹ to NC GreenPower. Note that customer-generators who choose to net meter are not permitted to sell electricity under the NC GreenPower Program.

State Loan Program¹²

The Energy Improvement Loan Program (EILP) ¹³ is available to North Carolina businesses, local governments, public schools and nonprofit organizations for projects that include energy efficiency improvements and renewable energy systems. Loans with an interest rate of 1% are available for certain renewable-energy projects and energy-recycling projects. Eligible renewable-energy projects generally include solar, wind, small hydropower (less than 20 megawatts) and biomass. Loans with a rate of 3% are available for projects that demonstrate energy efficiency, energy cost savings or reduced energy demand. Energy conservation projects usually include improvements to HVAC systems, energy management controls, high efficiency lighting and building envelope improvements.

FEDERAL INCENTIVES FOR RENEWABLES AND EFFICIENCY

Information for all incentives is found at the Federal DSIRE¹⁴ web page.

Residential Energy Efficiency Tax Credit¹⁵

The Energy Policy Act of 2005 established tax credits for energy efficiency improvements in the building envelope of existing homes and for the purchase of high-efficiency heating, cooling, and water heating equipment. Efficiency improvements and/or equipment must be placed in service from January 1, 2006 through December 31, 2007 and must serve a dwelling in the United States owned and used by the tax payer as a primary residence. The maximum amount of homeowner credit for all improvements combined is $500 during the two-year period of the tax credit.

Performance and quality standards for tax credit eligibility vary by technology. See 26 USC § 25C¹⁶ for details. In addition, the Internal Revenue Service (IRS) has provided the following interim guidance, pending the issuance of regulations, relating to the credit: IRS Notice 2006-26¹⁷

For more detailed information on qualifying products, visit the Energy Star Web site^{18 .}

Federal Loan Programs

Energy Efficient Mortgage¹⁹ 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.

Details can be found at the DSIRE website.²⁰

USDA Section 9006 Renewable Energy Systems and Energy Efficiency Improvements Program²¹

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. Funds were appropriated for FY 2002 through FY 2007. Funding after FY 2007 is currently under consideration.

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¹ http://www.dsireusa.org/ ² http://www.ncsc.ncsu.edu/information_resources/fact_sheets.cfm ³ www.ncsc.ncsu.edu ⁴ http://www.dor.state.nc.us/practitioner/individual/directives/renewableenergyguidelines.html ⁵ http://www.irs.gov/newsroom/article/0,,id=154657,00.html ⁶ http://www.dsireusa.org/library/includes/map2.cfm?CurrentPageID=1&State=NC&RE=1&EE=1 ⁷ http://www.dsireusa.org/library/includes/map2.cfm?CurrentPageID=1&State=NC&RE=1&EE=1 ⁸ http://www.ncsc.ncsu.edu/information_resources/factsheets/RenewableTaxCredit.pdf ⁹ http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=NC05F&state=NC&CurrentPageID=1&RE=1&EE=1 ¹⁰ http://www.ncgreenpower.org/ ¹¹ http://www.dsireusa.org/documents/Incentives/Small Solar-wind application 6-1-06.doc ¹² http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=NC01F&state=NC&CurrentPageID=1&RE=1&EE=1 ¹³http://www.energync.net/funding/eilp.html ¹⁴http://www.dsireusa.org/library/includes/statesearch.cfm?EE=1&RE=1 ¹⁵ http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=US43F&State=federal&currentpageid=1&ee=1&re=1 ¹⁶http://www.dsireusa.org/documents/Incentives/US43F.htm ¹⁷ http://www.irs.gov/newsroom/article/0,,id=154657,00.html ¹⁸ http://www.energystar.gov/index.cfm?c=products.pr_tax_credits#7 ¹⁹http://www.dsireusa.org/library/includes/incentivesearch.cfm?Incentive_Code=US36F&state=US&currentpageid=2&search=TableState&EE=1&RE=1 ²²http://www.dsireusa.org/library/includes/incentivesearch.cfm?Incentive_Code=US36F&state=US&currentpageid=2&search=TableState&EE=1&RE=1 ²³http://www.dsireusa.org/library/includes/incentivesearch.cfm?Incentive_Code=US05F&state=US&currentpageid=2&search=TableState&EE=1&RE=1