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Residential Incentives for Energy Efficiency and Clean Energy Installations

Residential Incentives for Energy Efficiency and Clean Energy Installations

Keeping current on the latest tax incentives and rebates for energy efficiency and clean energy installations is a time-consuming process.

The following information and links are provided to help residential energy professionals keep their clients informed about what monetary assistance is available.

The Federal Solar Investment Tax Credit (ITC) Details

The Federal Solar ITC was extended at the end of 2020 and is comprised of two versions: Residential and Commercial

The residential solar ITC remains at 26% for projects that begin construction in 2021 and 2022. The solar ITC declines to 22% in 2023 and is no longer available in 2024.

The solar ITC for commercial renewable installations remains at 26% for solar projects that begin construction in either 2021 or 2022. The tax credits then will fall to 22% in 2023 and then slide to 10% for 2024.

The following table contains pertinent details for both the residential and commercial solar ITC:

Residential Solar ITC Commercial Solar ITC
The system must be placed in service
during the tax year and generate
electricity for a home located in the
United States. The IRS will expect the solar installation to be completely installed during the calendar year.
Companies that begin solar projects in 2021 have a four-year period to bring their projects online in order to take advantage of the ITC. The solar projects will need to be functioning by the Jan. 1, 2026 deadline.
The solar PV system is to be located at
your primary or secondary residence in the United States, or for an off-site community solar project*.
There is a one-year extension of the production tax credit/ITC for land-based wind systems at 60% of full valuation.
You must  own the solar PV system (i.e., you purchased it with cash or through financing but you are neither leasing nor are in an arrangement to purchase electricity generated by a system you do not own). There is also an offshore wind investment tax credit of 30% for projects that begin construction Jan. 1, 2017 through Dec. 31, 2025.
The solar PV system is new or being
used for the first time. The credit
can only be claimed on the “original
installation” of the solar equipment.
Get Accelerated Depreciation of solar installations through Modified Accelerated Cost-Recovery System (MACRS).

(See 'Links' below)

Accepted expenses for the installation of the solar system include contractor labor costs for onsite preparation and  assembly for an original installation, that includes permitting fees, inspection costs, and developer fees.
Balance-of-system (BOS) equipment,
including wiring, inverters, and
mounting equipment.

Energy Storage (Batteries): Energy storage devices that are charged exclusively by the associated solar PV panels, even if the storage is placed in service in a subsequent tax year to when the solar energy system is installed (However, the energy storage devices are still subject to the same installation date requirements).

Links for More Information:

Homeowners Guide to Federal Tax Credit for Residential Solar PV from Energy.gov

Guide to the Federal Investment Tax Credit for Commercial Solar Photovoltaics from Energy.gov

25 States Offering Sales Tax Exemptions for Solar Energy by the Solar Energy Industries Association (SEIA)

Modified Accelerated Cost-Recovery System (MACRS) from DSIREUSA.org

Here is the link for the entirety of the Solar ITC and related bills in the "Consolidated Appropriations Act, 2021" issued by the 116th Congress on Friday, January 3rd, 2020: https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf

$2000 Per Qualified Dwelling Unit in the 45L Energy Efficient Home Credit

BACKGROUND

The Energy Efficient Home Credit, as established by the Energy Policy Act of 2005 and codified under §45L of the Internal Revenue Code, allows eligible developers to claim a $2,000 tax credit for each newly constructed or substantially reconstructed qualifying residence. Examples of housing for which this credit applies includes:

  • Single Family Homes,
  • Townhouses,
  • Apartments,
  • Condominiums,
  • Assisted Living Homes, and
  • Student Housing

The residence or building must not be more than three stories above grade in height. This incentive was extended by the “Consolidated Appropriations Act, 2021” and applies to residences sold or leased on or before December 31, 2021.

HOW IT WORKS

An eligible contractor must have constructed a qualified energy efficient home, as well as owned and have had a basis in the home during its construction. An eligible contractor may claim the credit for each home that qualifies for the credit if:

  • It is located in the United States
  • It meets certain energy saving requirements
  • It is sold or leased on or before December 31, 2021 for use as a residence (the credit can be taken retroactively for 3 years back or to any open tax year)
  • The residence or building must not be more than three stories above grade in height.

The §45L credit not only includes new construction, but reconstruction and rehabilitation projects. The incentive applies to single-family homes as well as condominiums, apartment complexes, and other multifamily residential buildings whereby each unit may qualify for a $2,000 credit.

ENERGY SAVING REQUIREMENTS

The §45L credit is $2,000 for a dwelling unit that is certified to have an annual level of heating and cooling energy consumption at least 50% below the annual level of heating and cooling energy consumption of a “comparable dwelling unit” and has building envelope component improvements that account for at least 1/5 of the 50% reduction in energy consumption.

A comparable dwelling unit:

  • First, it must be constructed according to the standards of chapter 4 of the 2006 International Energy Conservation Code, including supplements, as in effect on January 1, 2006,
  • Second, its heating and cooling equipment efficiencies must correspond to the minimum allowed by Department of Energy regulations under the National Appliance Energy Conservation Act of 1987 that are in effect when its construction is completed.

CLAIMING THE 45L CREDIT

Certification must be obtained to verify that the home satisfies specific energy efficiency requirements. Further, certification must be done using an independent, qualified individual to verify and certify that the property installed satisfies specific energy efficiency requirements using IRS-approved software. A site visit is required to verify installation of the energy efficient features. The tax credit is filed using IRS Form 8908, Energy Efficient Home Credit.

Energy Efficiency Rebates and Incentives From States and Energy Utilities

One of the best resources for information pertaining to State and Energy Utility energy rebates and incentives is from the Database of State Incentives for Renewable Energy or DSIREUSA.org

NOTICE: State of California 45L Credit for HERS Ratings

The State of California has its own online registration for 45L tax credits. Information from the California Home Energy Efficiency Rating System (CHEERS) website states:

What if my projects were uploaded to another HERS registry for Title 24 compliance?

No problem at all. Projects registered or HERS tested in another registry can be re-uploaded to CHEERS for 45L certificates only.

In this case, upload the XML energy file originally used for CF1R registration to CHEERS. If the project energy features meet the 45L efficiency requirements, a 45L certificate will be made available to the HERS Rater for review, signature and download. No other CF2Rs or CF3Rs need to be completed.

Here is the link for the CHEERS website regarding the 45L tax credit: https://www.cheers.org/45l-tax-credit/ (Scroll to bottom of page for links and information)

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