Incentives, or who will pay you to do what
As part of initiatives to help the economy and the environment, the federal government, Massachusetts government, and local utility companies offer a host of incentives for you to upgrade your heating, cooling, and electrical systems.

Why upgrade?
According to Energy Star, the average household spends more than $2,200 a year on energy bills, with nearly half of this going to heating and cooling costs.  By upgrading your systems you can change where your energy comes from and how much energy you use. 

Energy efficient systems can save you money and reduce your carbon footprint.

The government and your utilities may pay for a part of the installation.

Current Incentives

Utilities
Many utilities offer rebates for the installation of energy efficient equipment such as air handlers and furnaces.

Federal Residential Tax Incentives
The IRS will give you 30% of the cost of solar, solar thermal, and geothermal installations as a tax credit as part of the Residential Renewable Energy Tax Credit, with no cap!

Through the 2010 tax year, you can receive a tax credit of up to $1,500 for energy efficient home improvements with the Residential Energy Efficiency Tax Credit.

Massachusetts Incentives
Equipment used in solar, wind-powered, or heat pump systems for principal residences in Massachusetts are tax exempt with Form ST-12 sales tax exemption.

With the Massachusetts Solar and Wind Energy Credit you can receive a tax credit of 15% of solar installation costs up to $1,000.

Massachusetts’ program Commonwealth Solar offers rebates per watt of photovoltaic solar installation.

Tax Terms
Wading through forms and schedules to fill out federal and state income tax forms you will come across multiple ways to save money on your taxes.  Below are some commonly confused terms.

Tax Refund
Refunds are money paid back to you after filing your taxes if you have had more money deducted from your regular pay during the year than you owe.  They do not reduce the amount of money you owe (your tax liability), though they may need to be declared as part of next year’s taxes.

Tax Deductions
Tax deductions reduce the amount of money on which you will pay tax.  If you pay taxes on an income of $100,000 at 5%, you will pay $5,000 in taxes.  With a $5,000 deduction, you’ll pay taxes on $95,000.  Deductions may bring you into a lower tax bracket, but even if not, you will be paying 5% of $95,000, or $4,750.  Your tax liability will be $250 less for the year.

Tax Credits
When you qualify for a tax credit, you will pay less in taxes for the year.  If you have an income of $100,000 and get a $5,000 tax credit you will pay 5% of $100,000 minus $5,000, or $0.  Tax credits have a greater impact on your tax liability than deductions.  Translation: We like these even more!

Residential Renewable Energy Tax Credit
The Energy Improvement Extension Act of 2008 and The American Recovery and Reinvestment Act of 2009 increased the applicability and impact of the Residential Renewable Energy Tax Credit.  You can get a tax credit of 30% of qualifying geothermal, solar, and solar thermal installations (including labor).  The home does not have to be a principal residence.  If this credit is greater than your tax liability you can apply the excess credit to the following year of taxes.  This credit also can be applied to the Alternative Minimum Tax.  It is claimed on schedule 5695.  This credit has an expiration date set for 12/31/2016.

Qualifying Equipment:
Geothermal equipment must meet Energy Star requirements at time of purchase.

Geothermal Energy Star Requirements as of 4/20/10:

Open Loop Heat Pumps with a COP greater than or equal to 3.6 and an EER greater than or equal to 16.2. 

Closed Loop Heat Pumps with a COP greater than or equal to 3.3 and an EER greater than or equal to 14.1. 

Direct Expansion Heat Pumps with a COP greater than or equal to 3.5 and an EER greater than or equal to 15. 

Solar Electric (photovoltaic) Requirements:

Property used to generate electricity for a home.

Solar Water Heating (solar thermal) Requirements:

Property used to heat water for a home.  At least half of the energy used by the solar water heating property comes from the sun.  The property must be certified by the Solar Rating Certification Corporation or comparable entity in Massachusetts.

More information on qualifying equipment at: http://www.energystar.gov/index.cfm?c=tax_credits.tx_index

Residential Energy Efficiency Tax Credit
ONLY GOOD though 2010!This tax credit applies to a group of energy efficiency measures including: HVAC, biomass stoves, insulation, windows, and water heaters that are installed at a primary residence.  You can receive a credit of 30% of the installation cost up to $1,500 between 2009 and 2010.  For example, if you installed a new qualifying window in 2009 for $1,500 and took a $450 credit on your 009 taxes, you have $1,050 in remaining credit you may take for qualifying purchases in the 2010 tax year.  This is claimed on schedule 5695.

Requirements:

1. •Advanced Main Air Circulating Fan: Uses no more than 2% of the furnace’s total energy.
   

2. •Air Source Heat Pumps:   
   Split System: HSFP≥ 8.5, EER≥12.5, SEER ≥15
   Package System:  HSFP≥ 8, EER≥12, SEER ≥14
   

3. •Central Air Conditioning:
   Split System: SEER≥16, EER ≥13
   Package System: SEER≥14, EER ≥12
   

4. •Gas, Propane, or Oil Hot Water Boiler:  AFUE≥ 90
   

5. •Natural Gas or Propane Furnace: AFUE≥ 95
   

6. •Oil Furnace: AFUE≥ 90
   

Massachusetts Sales Tax Exemptions
Geothermal, solar, and solar thermal equipment used in Massachusetts for a principal residence is exempt from the 6.25% sales tax.  This includes materials that are used directly to provide energy needs for a principal residence.  This does not include energy for swimming pools and structural components (ie the roof to which the solar panels are attached).  This exemption is claimed with form ST-12.

Massachusetts Solar Property Tax Credit
You may receive a credit for 15% of solar energy property up to $1,000 for equipment which transmits or uses solar energy for heating, cooling, or providing hot water or electricity for a primary residence (photovoltaic or solar thermal).  Once again, pools and structural components do not apply.  This credit is claimed with schedule EC.

Massachusetts Commonwealth Solar
In the past year, Massachusetts Clean Energy Center took over Commonwealth Solar, a program for residential and commercial photovoltaic solar installation rebates.  The state provides funding for the rebates in blocks.  As of 4/20/10, block 2 of Commonwealth Solar Stimulus Rebate Program is closed, and block 2 of Commonwealth Solar II remains open after accepting applications again on April 9, 2010.  This version provides rebates of $1.00 per watt, $.10 for Massachusetts components per watt, and $1.00 per watt for a moderate home value (each maxing out at 5,000 watts).  Commonwealth Solar applications must be received and approved before beginning installations.  Click here http://www.commonwealthsolar.org/ for more information on the program and the latest updates.

Links to resources

Massachusetts DSIRE web site (especially for the utility info, which is not itemized above)

Energy Star description of requirements for federal credits

Energy Star: A Guide to Energy-Efficient Heating and Cooling

IRS forms and publication link

Massachusetts forms and publication link

This information is provided as a guide.  Please contact your tax professional for applicability.

Incentives Please note: This information is provided as a guide.  Please contact your tax professional for applicability.