Energy Tax Credits and the Fiscal Cliff

first_imgRenewable energy production tax creditDuring the past few months, developers of utility-scale wind projects have been operating in a climate of uncertainly. Most utility-scale wind projects in the U.S. only make economic sense if developers can claim the renewable energy production tax credit. This tax credit — equal to 2.2 cents per kilowatt-hour generated by utility-scale wind, biomass, and geothermal projects — was set to expire at the end of December 2012.Wind industry lobbyists were relieved to hear that the renewable energy production tax credit has been extended. Under the original enabling legislation for the tax credit, wind projects had to be placed in service by the end of 2012. The “placed in service” language has been replaced in the new legislation by language that makes a project eligible for the tax credit as long as construction was begun by January 1, 2014.The tax credit applies to wind projects, geothermal projects, landfill gas projects, waste-to-energy projects, and tidal energy projects. According to a blog by Peter Lehner, who works for the Natural Resources Defense Council, “The wind energy industry has expanded rapidly in the past decade, and employs about 75,000 Americans, many of them in manufacturing. But at the end of 2012, new job announcements in the wind industry fell off the jobs cliff, largely because of uncertainty in the marketplace about the tax credit.” An article published on the Clean Energy Authority website notes, “With doubts that the credit would be extended for 2013, the wind industry in the U.S. had already started to shutter manufacturing and developers and utilities stopped pursuing wind projects.”With this legislation, the wind industry has received a reprieve. As the fiscal cliff loomed last month, Washington lobbyists fretted over the future of three energy tax credit programs: the renewable energy production tax credit, the energy-efficiency tax credit for homeowners, and the tax credit for builders of new energy-efficient homes.The renewable energy production tax credit — the program that makes the development of utility-scale wind projects profitable — was set to expire at the end of 2012.While the energy-efficiency tax credit for homeowners and the tax credit for builders of new energy-efficient homes have both been dead for a year — the tax credits expired at the end of 2011 — lobbyists never gave up hope that they might use the fiscal cliff negotiations as an opportunity to revive the two tax credits.At the last minute, lobbyists for all three of these tax credits got their wishes granted. The tax credit for builders of new energy-efficient homesLike the energy-efficiency tax credit for homeowners, the tax credit for builders of new energy-efficient homes expired at the end of 2011.The fiscal cliff legislation extends the calendar for the tax credit for builders of new energy-efficient homes (also known as the Business Tax Credit for New and Renovated Energy Efficient Residences) in two directions: retroactively back to January 1, 2012, and forward to the end of 2013. Because of this new legislation, the tax credit can be applied to homes built in 2012 as well as homes built in 2013.For more information on this tax credit, see a report on the Mondaq website or the relevant page on the DSIRE website. The energy-efficiency tax credit for homeownersThis tax credit applies to certain types of residential HVAC equipment, water heaters, windows, doors, roofing, insulation, and air sealing equipment. Originally enacted in February 17, 2009 as part of President Obama’s stimulus bill, the energy-efficiency tax credit expired at the end of 2011. The credits apply to improvements made to an existing home; new homes are not eligible.As part of the deal to avert our national plunge over the fiscal cliff, the Congress agreed to extend the calendar for the energy-efficiency tax credit (also known as the 25C tax credit) in two directions: retroactively back to January 1, 2012, and forward to the end of 2013. Because of this new legislation, the tax credit can be applied to qualified equipment installed at any time after December 31, 2011.The tax credit is limited to $500; a taxpayer is ineligible for the credit if the credit has already been claimed by the taxpayer in an amount of $500 in any previous year.The following equipment is eligible for this tax credit:heat pump water heaters with a minimum EF of 2.0;gas-fired or oil-fired water heaters with a minimum EF of 0.82;gas-fired or oil-fired furnaces or boilers with a minimum AFUE of 95;certain energy-efficient air conditioners and energy-efficient air-source heat pumps;some types of windows and doors;certain air-sealing materials and insulation materials; andEnergy Star roofing materials.For more information on the residential energy efficiency tax credit, see complete details on the DSIRE website. What about homeowner tax credits for residential solar equipment?A fourth tax credit program — one that provides homeowners with a tax credit of 30% of the cost of residential wind turbines, photovoltaic (PV) systems, solar hot water systems, and ground-source heat pumps (GSHPs) — was at no risk of expiring last month. Established in 2006, that tax credit program isn’t set to expire until the last day of 2016.last_img