Renewable energy tax incentives.

• Author: Lau, Christopher

With continuing advances in renewable energy technology, many people may be convinced that it is worth spending money now on energy-efficient products in order to reap savings in the future. As part of the economic stimulus, federal and state governments are stepping up their efforts to encourage individuals and businesses to take advantage of renewable energy technologies to be more energy efficient. These incentives include income tax incentives, sales or property tax incentives, rebates, grants, loans, industry support, and bonds (these vary by jurisdiction). There are many forms of renewable energy, including solar energy, fuel cells, wind turbines, geothermal systems, and microturbines.

Many states offer tax-exempt grants to help taxpayers finance the costs (including installation) of renewable energy systems. For example, according to the Illinois Department of Commerce and Economic Opportunity, that state offers tax-exempt grants in an amount equal to 30% of the applicants' qualified expenditure, up to the maximum of $500,000. Details of different incentive programs offered by various states can be found at www.dsireusa.org, a useful website provided by the Database of State Incentives for Renewables and Efficiency. Federal funding of these state programs is limited; taxpayers should take advantage of these programs now.

Financial Incentives

There are several different federal financial incentives related to renewable energies. They include (but are not limited to):

* Bonus depreciation (1) and five-year modified accelerated cost recovery system (MACRS) depreciation for qualified solar, wind, geothermal, and qualified fuel cell energy equipment; (2)

* The business energy investment tax credit provided under Sec. 48 and the renewable energy production credit provided under Sec. 45;

* Treasury's Tribal Energy Program grants (3) and renewable energy grants and the U.S. Department of Agriculture's Rural Energy for America Program grants; (4)

* Various federal loan programs;

* Credits for manufacturers of energy-efficient appliances (5) and builders of energy-efficient homes; (6)

* A deduction for energy-efficient commercial buildings; (7) and

* An exclusion from income for residential energy conservation subsidies paid by public utilities to customers for purchasing or installing energy conservation measures. (8)

Tax Credits and Depreciation

Generally, Sec. 48(a) provides corporate taxpayers with a credit equal to 30% of the costs of...