Sheet metal & Air Conditioning Contractors’ National Association

Information

Congress moving toward another tax extension for solar / geothermal

Congress is on schedule to pass another extension for a number of tax incentives of high value for the energy efficiency driven HVAC segment of the construction industry.

After the turmoil in the House of Representatives leadership changes and the election of Rep. Kevin Brady (R-Texas) as the new chair of the tax writing Ways and Means Committee and the former Committee Chairman Rep Paul Ryan (R-Wis.) accepting the “speakership” it appears the stars are lining up to move a number of tax bills before the year ends.

Solar tax credit to expire

This legislation would provide a sense of certainty to contractors, suppliers, manufacturers, and residential customers. While this is good news, most tax committees and subcommittees are indicating the next extension may be the last if the current leadership in the Congress remains in place. Efficiency advocates, although positive on the odds for extending the incentives, find it troubling that weaker odds favor making the incentives permanent in the tax code or that a viable replacement has been discussed should the next extension be the end of the credits.

The 30 percent investment tax credit (ITC) for residential and commercial solar systems will expire on December 31, 2016, after which the ITC credit drops to 10 percent for commercial systems and is eliminated for residential systems. The federal tax policy is credited for dramatically lowering solar costs and accelerating solar adoption.

Solar, wind, and geothermal growth questionable

An October 2014 Deutsche Bank analysis predicted that the looming ITC expiration date could very well cause a spike in demand for solar projects while some investors or property owners may cancel projects due to the negativity coming from some on Capitol Hill. While the solar industry will continue to grow due to leasing options and the falling price of solar, solar advocates fear that the solar, wind, and geothermal industry will grow at a much slower rate unless Congress makes the incentives permanent.

Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is at a new home, the "placed in service" date is the date of occupancy by the homeowner. Expenditures include labor costs for onsite preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. The maximum allowable credit, equipment requirements and other details vary by technology, as outlined:

Geothermal heat pumps

  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2008, and on or before December 31, 2016.
  • The geothermal heat pump must meet federal Energy Star criteria.The home served by the system does not have to be the taxpayer’s principal residence.

Solar-electric property

  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.
  • The home served by the system does not have to be the taxpayer’s principal residence.

Solar water-heating property

  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.
  • Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or endorsed by a comparable entity of the government of the state in which the property is installed.
  • At least half the energy used to heat the dwelling's water must be from solar in order for the solar water-heating property expenditures to be eligible.
  • The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.The home served by the system does not have to be the taxpayer’s principal residence.

Hopes for passage this year???

While the ITC for solar and geothermal may end December 31, 2016, multiple efforts in straight up or down votes to extend a variety of efficiency and renewable incentives have recently begun to gain bipartisan support.

In fact, in a lopsided 23-3 bipartisan vote, the U.S. Senate Finance Committee voted in late July to extend a number of renewable energy production tax credits through the end of 2016.

The only three senators to cast a “no” vote were Dan Coats (R-Ind.), Mike Enzi (R-Wyo.) and Pat Toomey (R-Pa.). Coats and Toomey, who had initially called for the elimination of a number of efficiency incentives, withdrew their amendments after noting broad bipartisan support in the Senate tax committee to move on extending the efficiency incentives this year.

The extenders package would allow developers of wind, geothermal, biomass, hydroelectric, and other types of energy to take advantage of federal tax credits for projects begun before December 31, 2016.

SMACNA taking action

In an amendment supported by SMACNA, Sen. Rob Portman (R-Ohio) offered a proposal to the solar ITC that would have effectively allowed solar projects to qualify for a 30 percent tax credit as long as they began construction by the end of 2016 and completed construction by the end of 2019.

SMACNA will be increasing its effort to move this amendment and a number of other important commercial, residential and industrial efficiency investment incentive amendments, especially one to allow for small business expensing of HVAC equipment.