ENERGY TAX CREDITS
The time is running out on this powerful financial incentive.
January/February 1985
By the Mother Earth News editors
Issue # 91- January/February 1985
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As a part of the National Energy Act of 1978, Congress established a system of income tax credits for people who invest in conservation and renewable energy equipment. These credits are scheduled to expire at the end of 1985, and a proposal to renew them failed to get through Congress during 1984. It's likely that another renewal effort will be made during 1985, but not even the most optimistic observers think that extension of the credits is a sure thing. Therefore, this year may be your last chance to take advantage of the savings.
Residential renewable energy tax credits allow you to subtract 40% of the cost of applicable systems, up to a total cost of $10,000 (up to $4,000 of tax credit), from the federal tax you pay. (Note: This is not a deduction but a credit. By filing form 5695, owners can subtract that 40% directly from the tax they pay.) What is an applicable system? Well, that's not always easy to say. But on the basis of previous experience, it seems clear that active solar collectors are included in the description, and thermosiphoning units are seldom questioned.
If you choose to build your own collectors, you can deduct only the cost of materials. (Another option is to build a collector for your neighbor and have him or her build one for you. You then report the payment to your neighbor—for materials and labor—as an energy tax credit. . . and report your neighbor's payment to you as income. As long as your tax bracket is lower than 30%, you both save money.) The general intent of the rule is that the equipment must be new and the device must continue to work for at least five years. The credits apply only to a principal residence but may be claimed by either owners or renters.
Passive elements in new home construction present much stickier questions. Any part of a building that could be considered structural or decorative can't be claimed. Sunspaces have caused quite a ruckus, since the IRS is generally not inclined to accept them as deductible. Those that have been accepted have all had active systems for moving heat into the home. In addition, sunspaces must generally be uninhabitable.
