Tax-Credits & Incentives

Federal

Federal Tax Incentives for Wood and Pellet Stoves

High-efficiency wood stoves finally enjoy a significant tax credit: 30% of purchase and installation up to $1,500. The credit is available during 2009 and 2010 and applies to all wood and pellet stoves that are 75% efficient.

There are production tax credits for companies using biomass to make electricity, but no federal tax credit for making heat from biomass, other than the individual tax credit for a stove purchase.

For households that install solar, wind or geothermal technologies, there is a 30% tax credit but there is no maximum- that tax credit could be worth $5,000 or even $10,000 for a larger system. Almost all wood or pellet stoves cost between $1,500 and $3,500, so even with installation, the tax credit is usually, though not always sufficient. But for larger biomass systems like whole house boilers, furnaces and masonry stoves, that often cost $10,000 - $15,000 and are capable of displacing much more oil or gas and saving than a stove, the $1,500 cap is not as significant an incentive.

Why the difference between biomass and solar, wind and geothermal?.. The immediate reason is that the tax credits for biomass stoves are included as a Residential Energy Efficiency Tax Credit (all of which are capped at $1,500) instead of Residential Renewable Energy Tax Credit (which are not capped). The EPA and DOE accept biomass as a carbon neutral fuel, and its logical that biomass be moved to the Residential Renewable Energy section.

The implications of capping biomass tax credits but not solar, wind and geothermal tax credits, is that low and middle-income people are largely excluded from adopting residential renewable technologies. The up-front costs of solar, wind and geothermal are simply too high for 90% of Americans. But with EPA certified stoves wood and pellet stoves starting at $900 most Americans can displace significant amounts of oil and gas heating fuel, if they are inclined to use wood or pellets. Why shouldn’t our renewable energy tax policy also cater to the average American?

IRS Guidance on Tax Credit for Purchase of Biomass Stoves

Some important points of the tax credit:

§ This consumer tax credit is 30% (up to $1500) for the purchase and installation of a 75% efficient stove, and is available in both 2009 and 2010;

§ To be considered for the credit, a stove must use the burning of biomass fuel to heat a dwelling unit or to heat water for use in such a dwelling unit, and have a thermal efficiency rating of at least 75% as measured using a lower heating value;

§ Installation is covered, as long as it is a requirement for the stove’s proper and safe functioning;

§ The tax credit is an aggregate, i.e., the total $1500 can include other energy efficient items.  For instance, if a consumer claims $900 on a new stove, then he will have $600 to purchase additional energy saving products in the same tax year;

§ If a taxpayer uses the entire $1500 tax credit on a competing product then they cannot use it for a biomass stove in that same tax year;

§ This credit applies only to existing principle residences;

§ Manufacturers must provide a certificate of qualification for each product as required in the guidance that can be obtained for the customer to use;

§ Taxpayers must retain the certification statement for tax recordkeeping purposes, but the certification is not required to be attached to the tax return;

§ Prior purchases made between January 1, 2009, and June 1, 2009 are covered if the manufacturer offers a certificate of qualification for the product;

§ If a manufacturer has documentation that a stove has already achieved the required efficiency rating, no further testing is required;

§ The IRS has not stated that inserts are covered, or are not covered, but based on EPA’s practice of treating inserts and freestanding biomass stoves in a similar fashion, manufacturers may choose to include inserts.

If you would like to read the entire guidance, IRS Notice 2009-53, Non-business Energy Property, it can be found on http://www.hpba.org and http://www.irs.gov/pub/irs-drop/n-09-53.pdf.