Because clean energy systems provide benefits to the broader community --- by delivering positive environmental impacts, contributing to the nation’s energy independence, and promoting job creation -- government and non-government organizations offer tax breaks and other incentives to encourage residential and commercial property owners to buy clean energy systems.
These incentives can help you significantly reduce the total cost of your system (anywhere from 30%-50%) and thereby increase the return on your investment in a clean energy system. Your contractor / installer should make you aware of any applicable tax benefits and incentives and will help you prepare the required paperwork. Additionally, www.dsireusa.org is a good source of information about the incentives and rebates available to you in your state. It’s well worth the time and effort required to research what’s available to you since in most cases, homeowners and businesses will qualify for multiple incentives.
Tax Credits: The federal government and some states provide tax credits that allow homeowners and businesses to deduct a portion of their alternative energy investment cost directly from their overall tax bill. (Unlike a tax deduction, which merely reduces your taxable income, a tax credit reduces the taxes you owe directly, dollar for dollar.) Homeowners or businesses qualify for a federal tax credit equal to 30% of the net investment cost - which is generally calculated as total cost of the system less any cash rebates received. Additionally, some states allow a 10%-15% credit - with a cap - on the owners’ state income tax bills.
Sales Tax Exemptions: Some states exempt clean energy equipment from sales taxes.
Rebates: Rebates are paid to the owner after they install a clean energy system. Rebates may be available from your state, municipality, utility company, and/or other non-government organizations that want to promote clean energy systems. These rebates are generally available for a limited time and can help further reduce your system costs by 10% - 20%
Subsidized Loans: These are loans where your state, a non-government organization or your utility company covers either all or part of the interest expense for certain types of clean energy systems for a specified period of time. They vary widely by state and even utility company.
Renewable Energy Credits (RECs): In some states, the owners of some types of clean energy systems - generally solar or wind - can further benefit by selling credits based on the amount of clean energy they produce.
Consider Massachusetts, for example:
RECs in Massachusetts are currently priced at $300/Megawatt hour (1 Megawatt hour (MWh) = 1,000 kilowatt hours (kWh))
If a residential solar system produces 5,000 kWh (which equals 5 MWh) of power a year, the owner of that system is entitled to sell 5 RECs for a total of $1,500 ($300/REC x 5 RECs).
This is real income that is generated in addition to the value of the energy savings delivered by the system. (Note: REC proceeds are income and will be taxed as income.)
Property Tax Exemptions: Some states and municipalities exempt the value of clean energy systems from the property taxes they assess on businesses and homeowners that have installed alternative energy systems. This means that, even though the value of your property has been increased by the addition of a clean energy system, your property tax bill won’t increase--it will remain the same.
Accelerated Depreciation: Federal or state mandates that allow businesses to write-off the value of their alternative energy systems over a shorter period of time, effectively reducing their immediate tax burden.
Grants: Grants represent funds that are given to qualified parties for the purpose of installing an alternative energy system. Grants are usually offered to schools, towns or other government or non-profit entities.
Suffice it to say, these incentives can help you to significantly reduce the total cost of your clean energy system, increase the returns you receive from your system, increase the value of your property, and at the same time make it possible for you to protect yourself from rising and volatile energy costs for the time that your system is operational--usually 20-40 years.