Tax Benefits of Going Green with Your Business & Home

Posted by Heidi Clute - October 10, 2009 | Filed under: Archived Articles

Going green is a smart choice both for the planet, and more than ever in these days of federal and state tax incentives, for your wallet. Here are a few of the many opportunities available. (As always, consult a qualified financial advisor and tax professional before making a major financial decision.)

First, it’s important to distinguish between tax credits and. tax deductions. A tax credit is worth more than a tax deduction because a tax credit comes directly off your total tax liability. A tax deduction just reduces your taxable income before the tax liability is calculated.

Federal Tax Incentives include:

1. Federal Tax Credits for Homeowners

Efficiency: For existing homes only, tax credits are available at 30% of the cost, up to $1,500, in 2009 and 2010 for energyefficient windows and doors, insulation, roofs (metal and asphalt), HVAC, water heaters, and biomass stoves.

Renewable Energy: While each individual’s tax situation will vary, tax credits are available at 30% of the cost, with no upper limit through 2016 (for existing homes and new construction) for geothermal heat pumps, solar panels, solar water heaters, small wind energy systems, and fuel cells. This means you would receive 30% of the price paid for the qualified renewable energy system for your home as a credit against any federal taxes paid in the year you install it. You must have paid federal tax equal to or greater than the amount of the credit to take full advantage of this benefit.

2. Federal Incentives for Businesses

To encourage energy efficiency and renewable energy generation, a dizzying array of federal incentives for business have been developed including energy investment tax credits, accelerated cost-recovery depreciation, manufacturing investment tax credits, renewable electricity production tax credits, loan guarantee programs, and grants. (See Resources.) Two federal incentives offer an immediate tax benefit available to many Vermont businesses.

Business energy investment tax credits are available – up to a 30% tax credit for investments in projects certified by the Secretary of the Treasury as advanced production, transmission, storage or conservative use of energy. For example, a 30% tax credit is available for solar, fuel cells and small wind; a 10% credit for geothermal, micro-turbines and combined heat and power (CHP) systems. There is no cap on the credit amount and the tax credit can be used to offset the Alternative Minimum Tax (AMT) if applicable. This credit can be carried back one year and carried forward 20 years.

Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The federal Economic Stimulus Act of 2008 included a 50% bonus depreciation provision for eligible renewable-energy systems acquired and placed in service in 2008, which was extended through 2009. This usually allows a business to expense 50% of the value of the system in the first year.

3. Federal Tax Deductions for Commercial Buildings

A tax deduction of up to $1.80 per square foot is available to owners or designers of new or existing commercial buildings that save at least 50% of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001. Partial deductions of up to $.60 per square foot can be taken for measures affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems.

Vermont State Tax Incentives include:

Through Efficiency Vermont and the Small Scale Renewable Energy Incentive Program, Vermont offers a variety of tax incentives to both homeowners and businesses, which in many instances, piggyback on the federal tax incentives. Through 2009 and 2010, the largest combined federal and state tax incentives are available for the purchase of a qualifying renewable energy system installed by a registered Vermont company "partner."

1. State Incentives for Homeowners

Efficiency: There are a wide range of residential rebates and incentives offered on Energy Star appliances and lighting through Efficiency Vermont. (Please see Resources.)

Renewable Energy: The Vermont Small-Scale Renewable Energy Incentive Program offers individuals incentives to purchase and install solar water heat, photovoltaics (PV panels), wind, and micro-hydro systems. The amount of the state incentive is based on the amount of electricity generated and is calculated and capped at different levels for each technology. For example, for a qualifying solar panel system, the incentive is limited to the first 5,000 watts at $1.75 / watt with a cap of $8,750, which is paid to the installer who then passes this amount through to the buyer as an invoice credit.

There is also a significant state tax credit for individuals specifically for solar panel systems installed on business property. It is important to note that individuals may not apply for both an Incentive and a Vermont Solar Tax Credit. Please see the Business Solar Tax Credit section.

2. State Incentives for Businesses

Efficiency: There are a wide range of rebates and incentives offered to businesses for building, renovating and operating their buildings to minimize the use of electricity. These range from new construction to HVAC improvements and lighting changes. (See Resources for links.)

Renewable Energy: The Vermont Small-Scale Renewable Energy Incentive Program offers businesses incentives to purchase and install solar water heat, photovoltaics (PV panels), wind, and micro-hydro systems. The amount of the state incentive is based on the amount of electricity generated and is calculated and capped at different levels for each technology.

Business Solar Tax Credit: Vermont offers the "Business Solar Tax Credit" for installations of solar energy equipment on business properties. Note that the terms of the business solar tax credit are different for individuals (those with an individual financial interest in partnerships and other pass through entities) than they are for C-corporations (those that file a Vermont corporate return).*

The Business Solar Tax Credit is equal to 100% of the "Vermont-property portion" of the federal business energy tax credit for solar from 2008 through 2010. In effect, this constitutes a 30% state-level tax credit for systems and equipment that use solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. Note that, as an alternative, you can choose to receive the Small Scale Renewable Energy Incentive, but not both.

*In 2011, the business solar income tax credit for individual taxpayers will go from 100% of the "Vermont-property portion" of the federal business energy tax credit for solar (effectively making it a 30% state income tax credit) to 24% of the "Vermont-property portion" of the federal business energy tax credit for solar (effectively making it a 7.2% tax credit). However, for corporate taxpayers, the tax credit is valid only on expenditures made through December 31, 2010.

Resources:

Internal Revenue Service, Tax Credits
http://www.energystar.gov/index.cfm?c=tax_credits.tx_index#s1

IRS Publication 946, IRS Instructions for Form 4562: Depreciation and Amortization
http://www.irs.gov/

Database of State Incentives for Renewables & Efficiency
www.dsireusa.org

Efficiency Vermont
http://efficiencyvermont.org/pages/

The Renewable Energy Resource Center, a project of Efficiency Vermont
http://www.rerc-vt.org/

Vermont Department of Taxes Technical Bulletin 45, July 23, 2009 (pdf)
http://www.state.vt.us/tax/

Heidi Clute, CFP® of Clute Wealth Management in South Burlington, VT and Plattsburgh, NY, an independent firm and registered investment advisor that provides strategic financial and investment planning for individuals and small businesses in the Champlain Valley region of New York and Vermont. Clute Wealth Management and LPL are separate entities.  The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations.

Securities offered through LPL Financial. Member FINRA/SIPC.

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