Saving Energy = Saving Money At Home During Tax Season
To reduce U.S. energy usage and costs, federal and state governments are encouraging
Americans to employ more energy efficient systems in their existing homes. Furthermore, North
Carolina offers incentives to outfit existing homes with systems relying on renewable energy
sources, such as solar and wind.
New federal tax credit
The 2005 Energy Policy Act qualifies homeowners for a tax credit that encourages energy-
efficient improvements to a home’s exterior (windows, doors, insulation) and to its heating, air
conditioning, and ventilation (HVAC) and water heating equipment.
What is a tax credit?
Unlike a deduction, which lowers taxable income, a tax credit reduces the actual tax paid, dollar-
for-dollar. When making qualifying energy efficiency improvements to a home, homeowners won’t receive the credit instantly (like a rebate). When homeowners file their taxes, the credit will either
increase the tax refund received or reduce the amount paid. Qualifying energy-efficient measures
must be applied to homeowners’ main homes in the United States between January 1, 2006, and
December 31, 2007. This one-time tax credit allows homeowners to receive up to a 10 percent
credit or a total of $500 for the two years combined.
What is available for the tax credit?
? Insulation, sealing, weatherstripping, and exterior doors and storm doors: 10 percent of
cost (not including installation). Credit may not exceed $500.
? Windows, storm windows, and skylights: 10 percent of cost (not including installation).
Credit may not exceed $200.
? Energy Star pigmented metal roofs: 10 percent of cost (not including installation).
? Central air conditioners, heat pumps, geothermal heat pumps, water heaters: up to $300
toward the full purchase price, including installation.
? Furnaces and boilers: up to $150 toward the full purchase price, including installation.
? Air-circulating furnace fan: up to $50, including installation.
How to receive energy tax credits
Under the IRS rules, manufacturers must certify that specific products are eligible. Manufacturers,
installers, and retailers provide customers with copies of these certifications. Homeowners need
to file the appropriate IRS form for an energy credit, but do not need to submit certifications to the
IRS. Energy credit forms are available from the IRS, www.irs.gov. Homeowners should keep the
certifications and receipts on file.
Federal renewable energy tax credits
The federal government also offers tax credits to homeowners who employ renewable energy
sources in their homes. These systems must be “placed in service” or activated between January
1, 2006 and December 31, 2007. The credit is calculated based on the individual’s expenditures
excluding subsidized energy financing.
Qualifying renewable energy sources
? Residential solar electric or photovoltaic (PV) and solar water heat: 30 percent tax credit
up to $2,000 for purchase and installation. Full credits are available for both a PV system
and a solar water heating system. Credit does not apply to swimming pools or hot tubs.
? Fuel cells: 30 percent tax credit up to $500 per 0.5 kW
If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the next
North Carolina renewable energy tax credits
North Carolinians are eligible for tax credits on renewable energy systems. Renewable energy is
energy derived from solar radiation, vegetation, organic wastes, moving water, or wind; it does
not include energy from nuclear reactions or fossil fuels. Renewable energy property is
equipment that uses renewable energy sources to heat or cool buildings; to produce hot water,
thermal, or process heat; or to generate electricity.
Qualifying renewable energy sources
? Active and passive solar space heat: credit is limited to $3,500/dwelling unit and includes
the cost of windows, thermal mass, and controls.
? Residential solar water heat and solar pool heat: credit limited to $1,400/dwelling unit.
? Biomass, hydroelectric, solar electric or photovoltaics (PV), and wind: credit limited to
$10,500 per technology/dwelling unit.
? Solar thermal electric, solar thermal process heat, daylighting
Single-family homeowners who purchase and install a qualifying renewable energy system must
take the maximum credit amount allowable for the tax year in which the system is installed. If the
credit is not used entirely during the first year, the remaining amount may be carried over for the
next five years.
NC GreenPower tax deduction
NC GreenPower offers cleaner energy options for energy consumers in North Carolina. Working
with independent renewable energy producers and the state’s electric utilities, the program offers
electricity generated from sources such as the sun, wind, and organic matter. The program is
“homegrown,” meaning that energy is produced in North Carolina for the state’s power supply. A
$4/month contribution adds one block of 100 kilowatt-hours of renewable energy to the state’s
Contributions are made monthly through customers’ electric bills and are passed in their entirety
to NC GreenPower, which uses them to offset the higher costs of generating this type of
electricity. All contributions are voluntary. Participation in the program is tax-deductible on federal
income tax returns as a charitable contribution. More information is available at
Disclaimer: The North Carolina Cooperative Extension Service does not provide
tax advice or preparation assistance. Contact a qualified tax professional for
assistance in interpreting, preparing, and filing all tax returns. In addition, use of
brand names in this publication does not imply endorsement of products or
services named or criticism of similar ones not mentioned.
North American Insulation Manufacturers Association, www.naima.org/pages/tax_info.html Energy Star, http://www.energystar.gov/index.cfm?c=products.pr_tax_credits Tax Incentives Assistance Project, http://www.energytaxincentives.org/ Alliance to Save Energy, http://www.ase.org/content/article/detail/2654 DSIRE Database for State Incentive for Renewable Energy
North Carolina Solar Center,