Renewable Energy Tax Info

Massachusetts Renewable Energy Tax Incentives

A number of tax incentives are designed to promote the development and use of renewable energy resources. This is a brief summary and is not intended to replace consultations with your lawyer, tax preparer or the Department of Revenue who can provide a complete explanation of these incentives and their availability.

State Income Tax Credit Massachusetts provides an income tax credit for individuals who install renewable energy systems (solar or wind-powered) in their residences. The credit is 15% of the net expenditure (including installation) for the system, or $1,000, whichever is less. The credit does not apply to commercial users (M.G.L. C. 62, sec. 6(d)).

State Sales Tax Exemption

State law exempts from the state sales tax, the sale of equipment directly relating to any solar, wind, or heat pump system that serves as a primary or auxiliary power system for heating or otherwise supplying the energy needs of a person's principal residence. [The exemption does not apply to commercial users (M.G.L. c. 64H, sec. 6(dd).)

Local Property Tax Exemption

A taxpayer who installs a solar or wind-powered system for heating or otherwise supplying the energy needs of his/her residence or business is eligible for an exemption from local property tax. The exemption is good for twenty years from the date of installation. (M.G.L. ch. 59, sec. 5, cl. 45). Note: This exemption applies to the value-added to the property by the system and is not an exemption for the full amount of the property tax bill.

Corporate Income Tax Deduction

A business which purchases a qualifying solar or wind-powered climatic control unit or water heating unit is allowed to deduct from its net income, for state tax purposes, any costs incurred from installing the unit, provided the installation is located in Massachusetts and is used exclusively in the trade or business of the corporation (M.G.L. c.63, sec. 38H.). >Note: If you qualify for this deduction you may also qualify for the excise tax benefit described in M.G.L. c.63, sec. 38H(f).

Federal Financial and Tax Incentives for Homeowners

For homeowners

The Energy Policy Act of 2005 (H.R. 6) establishes a 30% tax credit up to $2,000 for the purchase and installation of residential photovoltaic (solar electric) and solar water heating property. An individual can take both a 30% credit up to the $2,000 cap for a photovoltaics system and a 30% credit up to a separate $2,000 cap for a solar water heating system. A 30% tax credit up to $500 per 0.5 kW is also available for fuels cells.

Solar water heating property must be certified for performance by the Solar Rating Certification Corporation or a comparable entity endorsed by the government of the State in which the property is installed. Note that the tax credit does not apply to solar water heating property for swimming pools or hot tubs.

The credit is calculated based on the individual’s expenditures excluding subsidized energy financing, which is defined as "financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy." Consumers who receive other incentives are advised to consult with a tax professional regarding how to calculate this federal tax credit.

If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. Expenditures include labor costs for the onsite preparation, assembly, or original installation of the system and for piping or wiring to interconnect the system to the dwelling.

To be eligible for the credit, a system must be "placed in service" or activated between January 1, 2006, and December 31, 2007. Expenditures with respect to the equipment is treated as made when the installation is completed. This provision is particularly important for expenditures made before 2006 for projects not "placed in service" until 2006. If the installation is on a new home, the "placed in service" date is the date of occupancy by the homeowner. The IRS will be issuing further guidance on claiming this credit.

Learn about other federal tax incentives, including production tax credits and tax incentives for businesses, municipalities and Not-for-profits.