Over at Energy Economy Online, Craig Severance wrote a good piece, Energy Makeover Time, reviewing the financial case behind investing heavily in energy efficiency and solar systems (both PV and hot water).
The key to making the cash flow work for a major Energy Makeover is to finance the improvement. Refinancing your home mortgage, and including the Energy Makeover costs, converts the cost into a monthly payment. The goal is utility bill savings that are bigger than any increase in mortgage payments — so your total housing costs actually go down.
While there are some particular elements of the case assumptions that won’t fit most people (huge Colorado utility rebates (about 40% of solar PV costs), a 6.5% original interest rate), Craig’s work is definitely worth the look.
Now, when reading it, I note a problem: Craig had the 30 percent tax credit for solar hot water limited to $2000. This, however, is a limit that has been overtaken by events (OBE): the ARRA (the stimulus package) lifted this limit. I contacted Craig, to point out this change. Craig came back that he had relied on the RIA, which is considered to be perhaps the nation’s top tax research service, used by a huge share of the nation’s CPAs and tax lawyers. From RIA, a 30 April 2009 search:
569,560. Residential energy efficient property credit for solar electric, solar hot water, and fuel cell property installed before 2017.
Introduction: Individual taxpayers are allowed a nonrefundable personal tax credit, known as the
residential energy efficient property (REEP) credit, for 30% of expenditures for qualified solar electric,
solar water heating, fuel cell, small wind energy, and geothermal heat pump property placed in service
before 2017. The credit is limited to $2,000 for solar water heating and geothermal heat pump
property, $500 for each 0.5 kilowatt of capacity of fuel cell property, and $500 for each 0.5 kilowatt of
capacity (not to exceed $4,000) of small wind energy property. There is no dollar limit for solar electric
property after 2008
RIA got this wrong.
For example, first thing up with the following google search ““tax deduction” solar hot water” is the US Government’s Energy Star website. There it will tell you that it is a 30% tax credit, with no limit.
$1,500 is the maximum total amount that can be claimed for all products placed in service in 2009 & 2010 for most home improvements, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems which are not subject to this cap, and are in effect through 2016
Note to RIA: There is no limit to geothermal and solar hot water systems.
Now, what is interesting is that the IRS form 5695 referenced is from 2008. For 2008, the tax credit limitation was $2000. But, this was changed in the ARRA (the stimulus package) which lifted the limitations.
Have to wonder how many CPAs and tax attorneys, relying on RIA like Craig did, will get this wrong.
Bad information fosters bad decisions.
NOTE: At this time, most people installing geothermal and solar systems are well aware of the benefits, likely to be in a position to challenge an accountant giving them bad advice on the tax benefits.