Arizona Solar Center Blog

Commentary from Arizona Solar Center Board Members and invited contributors.

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5 (More) Things to Know Before You Claim Your Energy Tax Credit: Part 2

(The Energy Savers Blog is a service of the U.S. Department of Energy.) Part 1

Yesterday, I started the list of things to know before you claim your tax credit. If you missed it, go back and check out part one. The list covers the forms you'll need, the tax credit maximums, which credits can (and cannot) be carried over, which credits include installation costs (and which don't), and when you need to deduct state and local incentives.

Today, I'll cover five more things you should know before you claim your tax credit.

  1. Know If You Are Eligible to Receive Tax Credits
    If you do not pay taxes, you cannot get the tax credit. Since the energy-efficiency tax credit is "non-refundable," you can't get back more in credits than you paid in taxes.

  2. Know When Your Product was "Placed in Service"
    You can only claim the credit for 2009 if the product was "placed in service" by December 31, 2009. That means that the product was installed and you are able to use it. If you purchased the product in 2009 but did not install it before the end of the year, you will need to wait until you file your 2010 taxes to claim your credit.

  3. Know Whether Your Renovation, Existing Home, or New Home Qualifies for the Credit
    Renovations to existing homes are eligible for tax credits.

    The energy efficiency tax credits available in 2009 and 2010 are only available for existing homes. New homes are not eligible. Products that fall under this rule include biomass stoves, HVAC equipment, insulation and air sealing materials, roofing, water heaters, and windows and doors.

    However, consumers building new homes can take advantage of the tax credits for geothermal heat pumps, solar energy systems, wind energy systems, and fuel cells, through 2016.

  4. Know How to Calculate the Credits for Spouses or Joint Home Owners
    If you are married and filing jointly, the amount of credit you receive does not double. If you and your spouse lived apart in separate principal residences, then you can each receive a $1,500 credit for any improvements.

    If you are unmarried but own a home jointly, you can each receive a tax credit but the maximum credit for the home is $1,500 (for the energy-efficiency credits) or 30% (for the products available through 2016). To calculate the tax credit, figure out what percent of the total cost each person spent. Each should get the same percent of the total tax credit available for the home.

  5. If You Own Multiple Properties, Know Which of Them Qualify for Credits
    The energy efficiency tax credits are available for improvements made to your principal residence—that is, a home you own where you live most of the time. Products that fall under this requirement include biomass stoves, HVAC equipment, insulation and air sealing materials, roofing, water heaters, windows and doors, and fuel cells.

    The home must be in the United States and could be a house, houseboat, mobile home, cooperative apartment, condo, and manufactured home.

    If you are a renter, you do not qualify for the tax credits.

    Renewable energy property, however does not have to be installed in a principal residence to qualify for the credit. If you install a geothermal heat pump, solar energy system, or wind energy system in a second home, you can qualify for the tax credit. If you rent your second home for part of the year (less than 80%), you can claim the credit based on the amount of time you live in the home For example, if you spend six months of year in a second home, you can take half of the available credit.

    Be sure to read the instructions on form 5695 for more.

And again my disclaimer: Please talk to your accountant or contact the IRS if you have questions about your specific tax situation.

Other great resources are the IRS Web site and the ENERGY STAR® FAQs on tax credits. I chose the topics in today's and yesterday's list because I thought they were items readers may not have considered; if anything here is confusing or doesn't answer your question, please let me know, but also check out those sites for more information.

Part 1

Allison Casey is a senior communicator at DOE's National Renewable Energy Laboratory, which assists EERE in providing technical content for many of its Web sites.

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5 Things to Know Before You Claim Your Energy Tax Credit: Part 1

I suppose it's officially "tax season," though that term doesn't seem to be tossed out by popular media until late March or early April, when the deadline is looming and pressure is on. If you're an early bird, you may already be thinking about your taxes. At the very least, you should be starting to gather up everything you'll need—I know those W-2s and other forms are trickling in!

Some of the materials you may need this year include receipts, forms, and manufacturer certification statements from any energy-efficient purchases you made last year. Take another look at which products are eligible for energy efficiency tax credits.

If you bought one of these products that qualify for a tax credit, there are a few things you should know:

  1. Know Your Forms
    Use the 2009 version of the IRS tax form 5695. Submit this form with your taxes. On the 2009 1040 form, claim your credit on line 52.

    You cannot file the 1040 EZ form or 1040A form if you want to claim the energy efficiency tax credits.

    Keep your receipt and manufacturer certification statement for your records, but you do not need to submit these with your taxes.

  2. Know Your Credit Maximums
    For energy efficiency products, you can purchase one or more products and receive a 30% credit, for a maximum credit of $1,500. This maximum applies to the two year period of 2009 and 2010; if you receive the maximum in 2009, you are not eligible for more credits in 2010. If you only receive, say, a $700 credit in 2009, you can still purchase more products in 2010 and receive up to an $800 credit when you file your taxes next year.

    The products that fall under this limit include biomass stoves, HVAC, insulation and air sealing materials, roofing, water heaters (non-solar), and windows and doors.

    Some products, however, are eligible for a 30% credit and are not subject to the $1,500 maximum. These include geothermal heat pumps, solar energy systems (including solar water heaters), wind energy systems. Fuel cells are also not subject to the $1,500 maximum, but are limited to $500 per .5 kW of power capacity. Tax credits for these products are available through 2016.

    See more details on products eligible for tax credits.

  3. Know Which Credits Can—and Cannot—Be Carried Over
    The credit for products that fall under the $1,500 maximum CANNOT be carried over to future years. They also cannot be carried over from 2009 to 2010, but you can take part of the total credit available in 2009 and part in 2010 (if, for example, you buy one product in 2009 and another in 2010).

    The credit for products that are not subject to the $1,500 maximum can be carried over to future years, as long as the credit is still in effect (through 2016). Since you can't get back more in tax credits than you paid in taxes throughout the year, this allows you to carry forward any portion you weren't able to claim.

  4. Know When the Credit Includes Installation Costs—and When It Doesn't
    For some products, you can include the cost of installation when figuring the credit. These are:
    • Biomass stoves
    • Central air conditioners
    • Air-source heat pumps
    • Furnaces and boilers
    • Advanced main-air circulating fans
    • Water heaters
    • Geothermal heat pumps
    • Solar energy systems (including solar water heaters)
    • Wind energy systems
    • Fuel cells

    Be aware that you can install the products above yourself, but you cannot claim labor and installation costs if you do so.

    For these products, do NOT include the cost of installation when figuring the credit:
    • Insulation and air sealing products
    • Roofing
    • Windows and doors

  5. Know How to Handle State and Local Incentives
    If you are eligible for multiple incentives for your purchase, you may need to subtract some amount before calculating your tax credit.

    In short: you DO need to subtract any utility rebate you received, and you MAY need to subtract any state or local rebate you received (depending on whether it was taxable). ENERGY STAR® has a great FAQ covering the details of what to do if you're eligible for both a tax credit and rebate.

    If you've received state or local financing, you do NOT need to subtract that financing. See ENERGY STAR's FAQ on state and local financing to learn more about what kind of financing applies.

This is just Part One of the things you should know before claiming your energy-efficiency tax credit. More to come tomorrow!

And my disclaimer: I'm not a tax professional. If you have a very specific question about your taxes, please talk to your accountant or contact the IRS.

You also may want to check out ENERGY STAR's FAQs on tax credits; they have almost 100 questions related to tax credits in their system, and one of them may be just what you're looking for. It's been an invaluable resource for me.

Part 2

Allison Casey is a senior communicator at DOE's National Renewable Energy Laboratory, which assists EERE in providing technical content for many of its Web sites.

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Federal Rebates for Heating and Cooling Systems

The federal government offers a rebate of 30% (up to $1500) for A/C units as well as for heating units.

The Energy Star website (address link below) has posted some Q and A which may be helpful for Arizona consumers.
Q: Do I have to replace both my heating and air conditioning to qualify for the tax credit?

A: The law does not require that you replace both your heating and air conditioning, but practically speaking you will probably have to replace both for the air conditioner to qualify.
Q: Is the $1,500 tax credit available for each product?
Can I get $1,500 for windows and another $1,500 for a new HVAC system?
Can I get $1,500 in 2009 and another $1,500 in 2010?
Can two people living in the same home both get the $1,500 credit?

A: Even if you purchase multiple products you can only get a maximum of $1,500 over the 2-year period (2009 & 2010).
Basically you can spend up to $5,000 during this 2 year period on a single or multiple products, and get 30% or $1,500 (30% of $5,000 = $1,500) back as a tax credit.
If you get the entire $1,500 credit in 2009, then you can't get anything additional in 2010.

Click here for the Energy Star Website Q&A and explanations.

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Solar Leasing & Lending

Updated Feb. 16, 2014

In 2014 solar adoption makes up a very small percent of the electrical generation mix in Arizona. But the trend is accelerating in favor of solar utilization not only in Arizona, but across the country.

What is the driver behind this growing trend? Most point to financial (business model) innovation. And one only needs to consider that it was not a technology innovation, rather a financial innovation, that fueled the automobile market in the U.S. in the 1910s, to understand why solar adoption rates are soaring.

The introduction of financing through GMAC finance took the American auto market from 7.7 percent adoption to 80 percent adoption in less than a decade.

A financial innovation unlocked the car market 100 years ago and is having a similar impact in the solar marketplace today. A new business model innovation (leasing) has fueled an increased adoption rate for solar electric which in turn is pushing costs down and further fueling the market.

In 2008, a company called SunEdison introduced a version of what is known today as the solar lease. Residential and commercial solar customers no longer need to invest capital in purchasing solar rooftop systems.

SunEdison offered to finance, install, own and maintain the solar panels on the rooftop of its customers. Homeowners did not have to take any risks. At the end of the (20-year) contract, the customer had a choice of purchasing the equipment at deep discounts or having them taken off the roof.

Soon after SunEdison, Solar City started offering a Solar Lease option and the solar market exploded. The concept caught on and other companies such as Sungevity and SunRun as well as local and regional companies joined the long list offering 'Solar Leases' or 'Solar PPAs'.

Partly as a result of these financial innovations, the solar market in America quadrupled from 2008 to 2012. Since 2012 the market has expanded even further as about 80 percent of all residential and commercial installations nationwide are now financed by third party-companies. In Arizona the number is closer to 90 percent.

But the economics of a lease versus out-right ownership is different in many ways. The lease is a contractual document that sells the property owner the solar output of the system. The 3rd party (system owner) in a lease maintains the RECs, and is the recipient of any rebate and tax incentive. A property owner that chooses to purchase their system outright receives all of the upfront incentives of a system but is also responsible for any maintenance of the system over its life.

There are a number of loan vehicles that a property owner may tap in order to purchase and own a solar system outright. These programs offered through lending institutions and government entities (i.e. property assessments) have been subject to considerable change. Please contact individual institutions to learn of any current financing options.

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Quick Facts: Solar Electric

Updated January 20, 2014
  1. A home solar system is typically made up of solar panels, an inverter, wiring (meter and disconnect switch) and support structure.
  2. A typical rooftop solar electric system is connected to the utility grid and relies upon the grid infrastructure for backup power. It will not operate in the absence of utility power.
  3. A modest PV system will pay for itself during the life of the equipment, generally several times over.
  4. Solar increases the value of your home.
  5. Solar equipment helps protect you from rate increases and fuel cost uncertainties.
  6. Use of solar helps decrease air pollution problems related to burning fossil fuels.
  7. Solar Energy is measured in kilowatt-hours. 1 kilowatt = 1000 watts. 
  8. To figure the cost of a photovoltaic system the system size is multiplied by the installed cost per watt.  A 1 kW system that costs $4 per installed watt would cost $4,000 (1,000 x $4 = $4,000).
  9. Larger systems have a lower cost per watt.
  10. Solar energy systems qualify for state and federal tax credits and exemption from state sales tax.  The cost of a solar system is further reduced by a state tax credit (25 percent up to $1000) and a federal tax credit (30 percent).
  11. A one kilowatt solar system that cost $4,000 to install would be reduced by a $1000 state tax credit and $1200 federal tax credit.  The out-of-pocket cost would be $2800.
  12.  A solar energy system generates units of energy measured in kilowatt-hours.  One kilowatt-hour (kWh) is the amount of electricity needed to burn a 100 watt light bulb for 10 hours.
  13.  A 1 kilowatt home solar system will generate approximately 1,680 kilowatt-hours per year in Arizona.  The average Arizona utility electric rate is $0.12 a kilowatt-hour – meaning the energy offset by a 1 kilowatt solar system is equal to $201.60 (1680 x $0.12 = $201.60).
  14. If a 1 kW photovoltaic system cost $2800 to install (after incentives), and saves $201.60 a year in electricity costs – the payback period would be 14 years.
  15. A typical Arizona home generally has an electric utility service rated at 200 amperes.  This generally limits the size of the inverter to about 8,000 watts without extra costs.  An inverter rated at 8,000 watts can generally use a photovoltaic array rated at up to 10,000 watts (10 kilowatts).
  16. If the photovoltaic array is in an area without shadows, or must face other than South, the performance will be affected.
  17. In one hour more sunlight falls on the earth than what is used by the entire population in one year.
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