Q&A: shedding light on solar tax credits.

I've been hearing a lot about state and federal solar tax credits. What are they and how do they work?

There has never been a better time for North Carolina residents to install a renewable energy system such as a solar thermal heating or hot water system. Taking advantage of both NC State and Federal tax credits could significantly reduce the cost of the system. The State of North Carolina offers a 35 percent credit up to $1400 for water heating, $3500 for active space heating, and $10,500 for Photovoltaic, wind and hydroelectric systems. The same renewable energy system could take advantage of another 30 percent tax credit from the Federal government, up to $2000.

The federal credits are part of a $14.5 billion package of tax breaks and incentives for renewables, efficiency and energy producers. Tax credits are great, because unlike deductions, they reduce your tax liability by the whole credit dollar amount. Both the state and federal credits can be carried forward to the following tax year if the credit exceeds your annual liability. The expense is simply reported on your tax return, so keep your receipts from the purchase.

For example, if you spent $4000 on a solar hot water heating system, you would receive a $1400 tax credit from state of NC and a $1200 tax credit from the federal government. You would have to pay some federal tax on the $1400 state credit--approximately $392 if you are in the 28% tax bracket. That means purchasing a solar water heater would only cost $1792. Subtract your current water heating bill and figure out what your payback would be (don't forget to include rising energy costs)!

If interested in purchasing a photovoltaic, wind or hydroelectric system to produce your own electricity, there are other incentives too. New to the State, of North Carolina is net metering. The NC Utilities Commission issued regulation allowing energy producing customers to connect to the grid and have their meter run backwards when they are producing more than they consume. Energy producing customers also have the option of the NC Green Power program which pays 18 cents per kWh. NC Green Power is also a great option if installing a renewable energy system isn't an option for you. A $4 contribution on your electric bill each month will offset 100kWh of your energy usage with green, renewable power.

Links and resources: www.ncsc.ncsu.edu/information_resources/ factsheets.cfm-www.ncsustainableenergy.org/renewable/ tax-credits.html--www.ncgreenpower.org

What kinds of tax Credits are available for home energy efficiency?

As of January 7, 2006 the federal government began offering tax credits for builders and homeowners for increasing the energy efficiency of their homes or buildings. These credits will be available for improvements made on new homes sold during the 2006 and 2007 tax years.

For qualifying energy efficient improvements made to a taxpayers "primary dwelling," the taxpayer is eligible to claim a lifetime credit up to a total of $500. The improvement must be in compliance with the 2004 International Energy Code.

For example, replace your Central Air Conditioner or Heat Pump with a 13 SEER Heat Pump or 15 SEER AC's and receive a $300 tax credit. Replace your Water Heater with one of qualifying efficiency and receive a credit of $300. Upgrade your furnace or boiler to a 95 percent AFUE unit for a credit of $150. If you would like to improve the "envelope" of your home, tax credits will pay ten percent up to $500 for upgraded insulation, exterior doors, duct sealing, air infiltration reduction and ten percent up to $200 for windows and skylights.

Credits are also available for energy efficient refrigerators, clothes washers and dishwashers. So, if you are thinking about making a replacement now is the time to do it! As with the renewables, it is as simple as saving your receipts and reporting it at the end of the year on your tax return. The total credit for all of the improvements cannot exceed $500.

Contractors of new homes are eligible for a $2000 tax credit if their home is certified by a Home Energy Rater to be 50 percent more efficient than the 2004 International Energy Code. This credit is available per home and is a part of the general business credit. This is a difficult credit to achieve but possible and the benefits of a fifty percent reduction of energy use are long lasting for homeowners and the environment.

The NC State Legislature currently has state incentives up for a vote this session that offer major benefits to both homeowners and new homebuilders. For more information on the state tax credits or to get involved visit: www.ncsustainbleenergy.org For more information on the federal incentives visit: www. energytaxincentives.org

Maggie Leslie works for the Western North Carolina Green Building Council, an Asheville area non-profit organization working to promote environmentally sustainable and health conscious building practices through community education. She can be contacted at [e-mail] 828-254-1995 or visit www.WNCGBC.org for more information.