Federal
Updated: January 2023
Federal
What: a 30% tax credit for wood and pellet heaters
Eligibility: heaters must be 75% efficiency or higher. Check efficiencies on the EPA database.
When: 30% for installations occurring after December 31st, 2021, and before January 1st, 2033; 26% for installations occurring in 2033; 22% for installations occurring in 2034. Link to IRS site.
How: claim the credit on IRS Form 5695 on your next federal tax return.
Why?: Wood and pellet stoves, as well as wood and pellet boilers are a very common and effective way to reduce use of fossil heating fuels that are damaging to our environment and a leading cause of global climate change.
Key tips: Make sure you buy a quality stove sized for your space. Avoid the cheapest models. For wood stoves, it is important to have a wood storage shed and split and dry your wood for up to 1 year.
2023: The Inflation Reduction Act, signed into law by President Biden, increases the tax credit to 30% as of 2023 through 2032, with a cap of $2,000. Eligible stoves still must be 75% HHV efficient, as shown in the EPA's database of stoves. There are still many details to hash out but the previous law, which would have given a 22% tax credit in 2023, will be discontinued.
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2021 and 2022: 2021 In December 2020, "biomass fuel property expenditures" was included under Section 25D of the Internal Revenue Code, which covers tax credits for renewable energy. This allows for a 26% tax credit on wood and pellet heaters that are at least 75% efficient that are installed between through 2022, and a 22% tax credit for those installed in 2023. The spending package that created this change also got rid of the $300 tax credit for biomass stoves described below. Click here for more information and here for an analysis of the credit and background about how it became law.
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2020: The $300 tax credit under Section 25C of the IRS tax code was included in a law at the end of 2019. The law brings back the $300 tax credit for biomass stoves that are at least 75% efficient and purchased in 2018, 2019 or 2020. To ensure that you are buying a high efficiency stove that will save you money on fuel and is 75% efficient or greater, check the EPA stove database. To take the tax deduction, complete IRS Form 5695 when you file your taxes. Click here for more information.
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2019: A Senate bill being introduced in October 2019, ‘‘Energy Efficiency Enhancement Act of 2019’’would reinstate the tax credit for wood and pellet heaters at $400 for EPA certified heaters that have efficiency listings on the EPA wood heater database of 73% or more in 2020 and 75% or more as of Jan. 1 2021. Based on current data, this would include a majority of pellet and catalytic stoves, and a minority of non-catalytic stoves. This bill did not pass but the $300 tax credit was passed through another package for 2019. See above paragraph on 2020.
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2018: The tax credit was retroactively extended for 2018 and 2019 in December of 2019. If you have to refile your 2018 taxes and bought a stove that was 75% efficiency or greater in 2018, you can now claim the deduction on your 2018 taxes.
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2017: The federal tax credit for wood and pellet biomass heaters expired as of Jan. 1, 2017 and is not available to consumers. It is possible that Congress will reinstate the credit, and it could be reinstated retroactively to Jan. 1, 2017, but this is purely speculative.
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2016: The federal tax credit for wood and pellet biomass heaters is available for purchases up until Dec. 31, 2016. It is our understanding that the purchase must occur on or before Dec. 31, 2016, but the installation could occur in 2017.
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2015: The tax credit for wood and pellet stoves and boilers was extended by Congress through the end of 2016 and applies for all stove bought during 2015 and 2016. Stoves are eligible for the $300 tax credit if the manufacturer certifies that it is 75% efficient or higher. Many manufacturers abuse the letter and the spirit of the tax credit legislation and certify all of their stoves at 75% efficient. This blog gives more detail on how manufacturers should determine if their stoves are eligible for the tax credit and how consumers can find tryle efficient stoves.
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2014: Congress extended the $300 federal tax credit for the purchase of a wood or pellet stove or boiler in 2014. For more information about how to claim the tax credit, click here.
2012 & 2013 - $300 tax credit for wood and pellet biomass heaters
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Taxpayers are entitled to a $300 tax credit for the purchase of wood and pellet stoves or biomass boilers and furnaces. The only conditions are that the equipment be at least 75% efficient and purchased in 2012 or 2013 and the taxpayer has not claimed an aggregate of more than $500 in previous years for this tax credit.
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On January 1, 2013, Congress passed a bill addressing parts of the Fiscal Cliff, and it included a reinstatement of the $300 tax credit for biomass heaters. The provision allows taxpayers to receive a tax credit for the full cost of the equipment and installation up to $300 for stoves bought in 2013 and is retroactive. Manufacturers became accustomed to ignoring the 75% efficient eligibility criteria, using various loopholes and industry guidance to subvert the intention of limiting the credit to higher efficiency stoves.
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A taxpayer could not collect the full $300 if they have already received tax credits under this provision in previous years and the total amount was over $500.
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Many websites say that the credit is only for 10% of the purchase price, up to $300, but this is incorrect. Biomass stoves are a "residential energy property expenditure" that receive credit under section 25C(a)(2). For more information, Click here.
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In addition to the purchase price, consumers can include the cost of professional installation which is important to the proper and safe operation of biomass stoves.
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2011 Biomass Appliance Tax Credit Slashed: One-year extension reduces cap from $1,500 to $300 and makes it harder to qualify
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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;
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§ 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;
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§ Installation is covered, as long as it is a requirement for the stove’s proper and safe functioning;
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§ 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;
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§ 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;
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§ This credit applies only to existing principle residences;
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§ Manufacturers must provide a certificate of qualification for each product as required in the guidance that can be obtained for the customer to use;
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§ Taxpayers must retain the certification statement for tax recordkeeping purposes, but the certification is not required to be attached to the tax return;
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§ Prior purchases made between January 1, 2009, and June 1, 2009 are covered if the manufacturer offers a certificate of qualification for the product;
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§ If a manufacturer has documentation that a stove has already achieved the required efficiency rating, no further testing is required;
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§ 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.
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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.