The following 2015 tax guide will acquaint you with some of the changes, as well as the incentives that you can make use of.

2014 Tax Break Extenders

This was one of the biggest news in December, 2014. The government finally decided to extend several energy efficiency incentives, including the section 45L energy tax credit. This means you can claim the amount for projects executed until December 31, 2014.

The package approved in the end of the year included nearly 50 tax breaks. The retroactive, one year extension is only valid for 2014 but some industry experts believe that new extensions will be examined by Senate shortly.

Some of the tax breaks approved in the end of 2014 include section 45L energy tax credit for new home energy efficiency, the qualified energy efficiency improvements tax credit and the section 179D energy efficient commercial building deduction.

How Much can You Claim?

An energy tax credit sounds great but what is the exact value of the incentive? It depends on the particular tax credit or deduction that you go for.

The maximum incentive you can claim under section 179D is 1.8 dollars per square foot of qualifying commercial real estate for whole building performance. Alternatively, the incentive is 0.60 dollars per square foot for building envelope improvements, HVAC improvements or lighting improvements.

Under section 45L energy tax credit conditions, you can expect an incentive that totals 2,000 dollars per unit for a newly-constructed residential building that is either rental or owner-occupied. Since the energy efficiency requirements for new residential buildings have become stricter over the past years, many buildings will qualify for the energy tax credit automatically. Check the conditions, if you have executed a residential project in 2014 – chances are that you’ll benefit from an attractive taxation incentive.

How to Get the Energy Tax Credit

Getting the energy tax credit, whether for a residential or a commercial project, is a relatively simple tax. For a start, you’ll need to have the building assessed independently. It will need to correspond to certain energy efficiency requirements and the test is performed by a third party.

Whether you’re a homeowner or an investor, you’ll need to have a good idea about the right IRS form to use. The form has to be filled out correctly and submitted with your taxes. You can find more information about the forms and the information that you need to provide on the IRS website.

Finally, understand the credit maximums and the particular incentives that can be carried forward. Some of the energy efficiency tax credits can be carried over to coming years, in case they exceed the amount you owe in taxes.

Apart from giving these incentives a try, you may also look for state and local programs encouraging energy efficiency improvements. These may save you even more money and enable you to get the best possible return on your investment.

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What does the future have to hold for this kind of electricity production? Homeowners and other individuals interested in executing sustainability projects involving solar property have a couple of great opportunities to make use of in 2015.

The Residential Renewable Energy Tax Credit

The Residential Renewable Energy Tax Credit gives homeowners interested in sustainability projects a stimulus for the purchase and the installation of solar property. This credit is valid for the systems that have been placed in service prior to the end of 2016.

There is no maximum energy tax credit for such systems and a homeowner can install solar property in a primary residence, a second home or a vacation property. Incentives are also available for the homeowners that install solar water-heating property.

The rebate amount under this incentive is 30 percent of the qualified expenditure for system purchase, labor costs and installation.

If the credit is higher than the amount that an individual owes in taxes, it can be carried forward to the next year. It’s unclear whether any unused credit will be carried forward after the end of the program in 2016.

Opportunities for Commercial System Installations

Tax credits for solar system purchases are also available for commercial installations. The solar investment tax credit is also available through the end of 2016 and it applies to the installation of both photovoltaic energy production systems and water heating equipment. There could be some differences between the energy tax credit available for residential and the one for commercial entities. Talking to a tax professional about the rules, as well as about the ability to carry the tax credit forward is the best policy in terms of maximizing the benefits from the opportunity.

Other Initiatives and Benefits of Solar Installations

Grants and other taxation incentives are available to investors interested in developing sustainable energy production through the use of photovoltaics.

State incentive programs are available and these vary from one part of the country to another. The New York State Incentive Program, for example, is available through the end of 2015. Florida is another state that has lucrative opportunities for the production of energy through solar installations. Checking local incentives, their conditions and the qualification requirements will determine whether the project will give access to some energy tax credit.

The Obama administration has proposed billions in additional funds for alternative energy production stimuli. Some of these new opportunities will probably be announced in the beginning of 2015, giving investors even better conditions for the execution of such projects.

The prominence of solar power production will continue growing in the years to come. Investing in this kind of installation right now will help you save money and give you access to additional stimuli. The energy tax credit is just one of those opportunities.

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The Federal Tax Credit for Consumer Energy Efficiency

This tax credit is available for several types of residential property improvements introduced in the period until December 31, 2016. The credit totals 30 percent of the project’s cost and up to 500 dollars per 0.5 kilowatt of power capacity.

The credit will apply to improvements of existing homes and new construction. The property will have to be a principal residence, a second home or a vacation property. The only exception comes in the case of fuel cells, which should be installed in the principal residence only.

The types of projects that will qualify you for the energy tax credit include geothermal heat pump installations, small wind turbines for residential use, solar energy systems and solar water heating systems.

Who’s Eligible?

US homeowners that execute any of the mentioned projects in the period until the end of 2016 are eligible for energy tax credits.

People that have relied on a solar lease or a power purchase agreement (PPA) do not qualify for a tax credit. In such instances, the leasing company is considered the owner of the equipment installed on the property. A number of leasing companies will actually take the tax credit in consideration when calculating your rate, so you’ll still benefit from the opportunity.

Calculating the Energy Tax Credit

This part of the process is the most confusing one for a number of homeowners. A few basic steps will need to be followed to reach the accurate amount.

The 30 percent should be calculated on the basis of the net cost of the installed equipment. You’ll first have to deduct the value of any rebate (both utility and state). The amount that you get after you make the calculation can be used to pay the taxes you owe.

Keep in mind that the amount you get is not refundable. If it exceeds the taxes you owe during the particular year, you can use the amount partially or fully to cover your taxes during the next year.

Applying for an Energy Tax Credit

Now that you know what it takes to qualify for the credit and how to make the calculations, it’s time to take a look at the application process. Fortunately, it’s a simple one.

You can visit the Energy Star website for more information about the documents you need to fill out.

For products that you have purchased and installed during 2014, you will need to file the 2014 version of Form 5695. In the form, you’ll need to list details like qualified solar/wind/geothermal property cost, the kilowatt capacity of the equipment and the credit carry forward information. Following the basic steps, you’ll enter the tax credit amount at the bottom of Form 5695.

The figure you get should be entered on you 1040 form. Submit form 5695 alongside your 2014 taxes and you’re done.

There is nothing complicated about calculating your energy tax credit and applying for it. Take your time to go over the calculations a few times to make sure everything’s accurate. Once you’re certain that you’ve filled the forms correctly, you’ll benefit from this opportunity to decrease your taxes.

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Photo Credit: iStock Photo

Various kinds of building improvements focusing on energy efficiency will make you eligible for an energy tax credit. The execution of a project focusing on solar-based energy production is one of the viable options.

The program is available throughout 2016 and if you’re planning an upgrade, the time is right to get started.

Terms and Conditions

The installation of an Energy Star-approved system based on solar panels until 2016 will make you qualify for an energy tax incentive. You’ll get to claim 30 percent of the installation cost as a tax incentive for the particular year.

The incentive amount is to be taken directly off the tax payments. It doesn’t work as a taxable income deduction. This credit can be claimed for a wide range of residential projects including your primary residence and a property used for vacation purposes. The incentive will apply to both new buildings and modifications of existing constructions.

It’s important to keep in mind that the incentive does not apply to rental property you decide to modify.

How to Claim the Energy Tax Incentive for Solar Installations

An IRS Form 5695 has to be filled for the tax incentive to be claimed. The form is used to calculate the amount of the incentive , after which the sum is entered on the 1040.

It’s possible for an individual to end up having a larger incentive amount than the due tax income. The extra money cannot be gotten back from the IRS. This amount will be carried over for the following tax year.

Additional Benefits of Solar Panel Project Execution

Installing solar panels as an option for generating electricity comes with benefits that exceed the financial and taxation incentives. There are many reasons why you should give this kind of project some consideration.

A solar panel installation brings the value of residential property up. Both home buyers and real estate investors are on the look for sustainable developments. Depending on the location, the addition of a solar panel system increases the value of a home by anywhere between 5.50 and 5.40 dollars per watt, a Lawrence Berkley National Laboratory study suggests.

Explained in simple terms – a 3.1 kilowatt solar energy system will add approximately 17,000 dollars to the value of residential property.

Depending on the size of the solar panel installation, property owners can save a lot of money on their energy bill. A big portion of property owners that have a solar installation will reduce their electricity bill by nearly 50 percent. Some individuals that carry out more ambitious projects will eliminate the electricity bill altogether.

According to statistics, an average solar installation will produce 840 kilowatt hours per month. An average US family needs 920 kilowatt hours per month to lead comfortable life.

Finally, depending on the location, solar panels can even be used to generate some passive income. There are great renewable energy incentives in numerous states and every installation that qualifies for such programs will result in a payment for clean energy production. Doing a basic online search will help you figure out whether you’ll get to benefit from such an incentive.

Solar systems are constantly growing in popularity because the price of the equipment is going down and such installations bring a high return on investment. The availability of options like the energy tax incentive makes such sustainability projects even more lucrative.

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Geothermal heat pumps are starting to gain popularity among house owners interested in boosting the energy efficiency of their property. Such installations contribute to a number of important benefits apart from the access to the energy tax incentive.

Introduction

A geothermal heat pump (GHP) uses a ground heat exchanger to exchange either warmth or cooling with the earth. GHP is thus different from an air pump that completes the same kind of exchange with the surrounding air.

The use of earth as a medium is a really good idea because the temperature below the ground remains relatively constant. The temperature below the ground is warmer than the surface during the winter and colder during the summer. It is easy to understand how this natural phenomenon contributes to sustainability and energy efficiency in terms of heating and cooling.

GHPs are mainly used to heat and cool a house. Through the addition of some more equipment, such systems can also be used for water heating. Before considering such an installation, it is also important to increase the property’s energy efficiency and minimize heat losses.

Cost-Efficiency

Though the original installation can be quite costly, the GHP is one of the most cost-efficient home improvements that will give access to an energy tax incentive.

The initial expenditure will be absorbed within five to 10 years of the system’s operation. A GHP will produce sufficient bill savings, which will quickly add up to balance the original investment in the system. Depending on the type of system being chosen, utility bills can be cut by anywhere between 40 and 70 percent.

In addition, when quality components are chosen, a geothermal heating system can have a lifespan of up to 30 years. The underground components are even more long-lived and they are usually provided with a 50-year warranty.

Minimal Use of Energy

The main principles that geothermal heating systems use to function are quite different from those guiding the operation of electric or oil heat systems.

Rather than generating heat, the GHP will move it from one place to the other. Heat will be “taken out” of the house during the summer and into the property during the winter. Since heat is only being moved around, the amount of energy needed to power the process is negligible in comparison to the one required by systems that have to generate heat. 

Other Benefits

The maintenance cost of having a GHP is lower when compared to other energy efficient possibilities. In addition, the toughness and longevity of the components make them less likely to break and require repairs.

Geothermal systems are the ones that create the best living environment. Hot and cold spots throughout the house are very common for other heating and cooling possibilities. The GHP guarantees even heating or cooling, meaning that the temperature will be the same throughout the house.

Choosing the right geothermal system for your home and learning more about the energy tax incentive and other financial stimuli available for such installations will be essential for getting started. Talking to experienced professionals in the field will give you all of the essential information needed to figure out whether this energy efficient home improvement is the right one for you.

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The Renewable Energy Production Tax Credit is one of the provisions affected by EXPIRE. What does this legislative change mean?

The Consequences of EXPIRE

The EXPIRE act is currently being considered by the US Senate. It focuses on several key expiring provisions like the Renewable Energy Production Tax Credit (PTC). If this bill becomes a law, investors will qualify for an energy tax credit for any wind energy development that begins by the end of 2015.

The popularity of wind energy production is growing but the sector has been influences by the numerous legislative and regulatory changes. The uncertainty has led to a decline in the number of developments and the investment in this alternative form of energy production.

PTC was introduced under the Energy Policy Act of 1992. Since then, the energy tax incentive has been allowed to expire a total of five times. Such developments have understandably led to some stagnation in the field of renewable resource energy projects. According to the American Wind Energy Association, the expiration of energy tax credits has led to a decrease in the number of domestic installations ranging between 76 and 92 percent.

PTC was allowed to expire one final time in the end of 2013. Quick actions by Senate and the extension of the energy tax incentive could result in a more robust wind energy production sector, which is why EXPIRE is so important.

More Extensive Reforms?

According to the Senate Finance Committee, more extensive and permanent measures will be needed to stimulate energy efficiency and to decrease the reliance on fossil fuels for electricity production.

EXPIRE is just a temporary possibility for extending the renewable energy tax credit benefits. Several committee members including Chairman Ron Wyden have said that EXPIRE is the last expiring provisions act that the committee will deal with. Extensive taxation reforms that focus on energy efficiency will be needed in the future.

It seems that the benefits of EXPIRE and the extension of energy tax credits are clearly understood. On June 26, 2014, Congressional leaders received a petition that urges them to support EXPIRE.

Clean Energy and the Future of the US

The investment in energy production from renewable sources has increased significantly since 2004 and energy tax incentives are one of the reasons for such positive developments. According to one report, the investment in wind, solar and geothermal energy has gone up nearly 250 percent and it reached 36.7 billion dollars in 2013.

Experts also predict that nearly 46.6 percent of the electricity consumption will come from renewable sources by 2030. The production of coal-based electricity is expected to see a significant drop by the same year, which paints a rather complete picture about the future of energy production.

The investment potential of clean energy is significant and the extension of policies like Renewable Energy Production Tax Credit will be essential for boosting the popularity of such projects.

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