Tax Initiatives for Environmentally Friendly Houses in Arizona

Environmentally friendly housing designs, such as those that capture wind energy to provide you with electricity, save you money in more ways than one. First, they directly help reduce your utility bills. Second, the government may offer lucrative tax breaks to encourage you to use such natural resource-conserving, eco-friendly tools. In fact, the state of Arizona extends thousands of dollars in such tax breaks to its residents.

  1. Water Conservation Systems (Individual Income Tax Credit)

    • The state of Arizona offers income tax credits for both corporations and individuals who install a water conservation system. Such systems collect and reuse residential graywater, such as water from your kitchen sink, or rainwater. All installations must meet the rules set by the Arizona Department of Environmental Quality, available toll-free at 800-234-5677. The tax credit for individuals is worth 25 percent of the cost of the conservation system, to a maximum of $1,000. This credit, first launched for tax year 2007, is valid through 2011. Note that the Arizona Department of Revenue only releases $250,000 worth of this credit every calendar year, so it's wise to install such a system and apply for the credit as early in the year as possible.

    Solar Thermal Installation

    • The average person uses approximately 25 gallons of hot water every day, according to the City of Flagstaff, and it takes a lot of energy to heat that water. The city estimates that the average Arizona family of four will spend up to $1,200 annually to heat their water. Solar thermal systems can help by using the sun's heat to directly heat water, often by cycling water onto a rooftop before bringing the warmed water back into the home. Arizona houses that install such water-heating thermal systems can be eligible for tax incentives worth up to 30 percent of the installation cost of the system, thanks to the federal Residential Energy Efficient Property Credit outlined under H.R. 1424, also known as the Emergency Economic Stabilization Act of 2008. This tax credit is available through tax year 2016.

    Residential Solar Energy Credit

    • If you install a wind or solar energy device on your Arizona home, the Arizona Department of Revenue offers a tax credit against your personal income tax for 25 percent of the cost of the wind or solar device, up to a maximum of $1,000. This category is broad, and includes devices that use solar or wind to heat, cool or produce power for your home. This can include solar panels or windmills. First launched in 1995, this income tax credit is currently permanent with no expiry date, as of 2010.

    Income Tax Subtraction for Energy-Efficient Residences

    • If you're selling your home in Arizona and it's declared an energy-efficient home, you may claim 5 percent of the sales price, minus fees, taxes and commissions, from your income tax. Thus, this can be a very substantial tax break, depending on the final sales price of your house. This tax credit was first made available in 2001 and expires at the end of the 2010 tax year, though it may be renewed. To be eligible, the home you're selling must score 90 points higher than the state's 1995 model Energy Code Threshold.

    Energy Equipment Property Tax Exemption

    • You may deduct the value of any renewable energy equipment from your property's value as a property tax exemption. This tax exemption was first established in 2006 and currently has no set expiry date. Eligible equipment includes windmills, hydropower, solar panels or any other building component that uses renewable energy to heat, cool or power your home.

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