Tax-Credits & Incentives
Federal
2012 - Tax Credit for Biomass Stoves Expires
The individual tax credit that provided consumers with a 30% tax credit on wood heaters in 2009-2010 and a 10% tax credit in 2011, has now expired completely, as of Jan. 1, 2012. The tax credit was part of section 25C of the tax code. The intent of the 25C provision was to advance home energy-efficiency upgrades by providing a monetary incentive through the tax code. This incentive would help consumers overcome the initial upfront cost of installing high-efficiency technology in their homes. In addition to wood and pellet stoves that were more than 75% efficient, the credit applied to insulation, energy efficient windows, etc.
While the 30% tax credit up to $1,500 was significant, it came at a time of recession, and did not result in the uptick of sales that it could have. In 2012, the pubic was still not in much of a buying mood, and a 10% tax credit was not that much of an incentive. Rather, it more likely gave a benefit to those who would have made the purchase anyway.
There is still a chance that a tax credit could be passed in 2012 and it could even be retroactive to Jan. 1, 2012.
2011 Biomass Appliance Tax Credit Slashed: One-year extension reduces cap from $1,500 to $300 and makes it harder to qualify
The House approved the $858 billion dollar Tax Cuts Compromise Package of 2010, which the Senate passed yesterday, reducing the biomass heater tax credit to 10% with a $300 cap. This will apply to all biomass appliance sales in 2011. According to the EPA, this can apply to purchase price and installation.
Energy efficiency provisions were shortchanged even further by a clause that says the $500 tax credit is a lifetime maximum, meaning that if a homeowner has used this credit anytime since 2005, it cannot be used again. During the past 2 years, the credit up to $1,500 could be used regardless of whether the family has used the credit between 2005 and 2009.
The reduction to 10% tax credit affects all energy efficiency measures that had enjoyed 30% credit for the past two years. Many members of Congress felt the 25C tax credit program had cost the government too much money and should not be extended in its current form at 30% up to $1,500.
This setback for incentives for wood and pellet heating systems is a result of biomass appliances being considered an energy efficiency device instead of a renewable energy system. Solar, wind and geothermal systems still enjoy the full 30% tax credit with no maximum and are not set to expire until 2016.
�This creates a terrible double standard for incentives between renewable energy systems favored and affordable by the wealthy and systems favored and affordable by average American families,� said John Ackerly, President of the Alliance for Green Heat. �Fortunately, we understand that Congress will be revisiting these tax credits again in 2011 and advocates for cleaner and more efficient biomass appliances need to be prepared,� said Ackerly. Instead of using tax credits based on a percentage of purchase and installation costs, Congress is likely to consider performance-based credits.
2009 - 2010 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.