Solar Rebates and Solar Tax Credits for New Mexico

New Mexico's Energy Efficiency and Renewable Energy Bonding Act, which became law in April 2005, authorizes up to $20,000,000 in bonds to finance energy efficiency and renewable energy improvements in state government and school district buildings. At the request of a state agency or school district, the New Mexico Energy, Minerals and Natural Resources Department will conduct an energy assessment of a building to determine specific efficiency measures which will result in energy and cost savings. A state agency or school district may install or enter into contracts for the installation of energy efficiency measures on the building identified in the assessment. An installation contract may be entered into for a term of up to 10 years.

The bonds are exempt from taxation by the state, and any type of renewable energy system and most energy efficiency measures, including energy recovery and combined heat and power (CHP) systems, are eligible for funding. Projects financed with the bonds will be paid back to the bonding authority using the savings on energy bills.

Note: The Inflation Reduction Act of 2022 (H.R. 5376) made several significant changes to this tax credit, including expanding the eligible technologies, extending the expiration date, modifying the scheduled step-down in its value, providing for new bonus credits, and establishing new criteria to qualify for the full credit. It also phases out this tax credit under section 48 of the Internal Revenue Code and replaces it with a new technology-neutral tax credit under section 48E of the Internal Revenue Code. The summary below describes the current section 48 tax credit as modified by the Inflation Reduction Act, and below that, the new 48E tax credit.   

The federal Business Energy Investment Tax Credit (ITC) has been amended a number of times, most recently and most significantly by the Inflation Reduction Act of 2022. That bill established new prevailing wage and apprenticeship requirements for larger system to qualify for the full 30% tax credit. The Department of the Treasury issued Initial Guidance on these requirements on November 30, 2022 . According to law, the labor provisions apply to projects for which construction begins 60 days or more after Treasury publishes its guidance. Given the publishing date of November 30, 2022, the effective date for the labor provisions is January 30, 2023. The credit for different project types and available bonus credits is described below.

Base Credit

Projects under 1 MW (or larger projects that are commenced no more than 60 days after the Treasury Secretary develops labor guidelines) do not need to meet the new labor standards established by the Inflation Reduction to receive the full 30% tax credit. Such projects that begin construction after 2021 and before 2025 can receive the full tax credit of 30%. Note, projects that commence construction on or after January 1, 2025 can receive a tax credits under the new Clean Electricity Investment Tax Credit (48E) described below. 

Projects over 1 MW that begin construction 60 days after the Treasury Secretary releases labor guidelines (January 29, 2023) and no later than January 1, 2025 will receive a base tax credit of 6%. However, projects can qualify for the full 30% tax credit if they ensure that all laborers and mechanics involved in the construction of the project or the maintenance of the project for 5 years after project completion are paid wages at rates not less than prevailing wages. Projects must also ensure that a percentage of total labor hours are performed by qualified apprentices. The percent of hours increases over time to a maximum requirement of 15% in 2024 and thereafter. Note, projects that commence construction on or after January 1, 2025 can receive a tax credits under the new Clean Electricity Investment Tax Credit (48E) described below. 

Bonus Credits

Projects in which 100% of any steel or iron that is a component of the facility and 40% of the manufactured products that are components of the facility were produced in the United States can qualify for the Domestic Content Bonus. For projects that are under 1 MW and projects that are larger than 1 MW and meet the labor requirements specified above, the Domestic Content Bonus increases the tax credit by 10 percentage points. For larger projects that do not meet the labor requirements, the Domestic Content Bonus increases the tax credit by 2 percentage points. Note, the 40% requirement for manufactured products increases over time, eventually requiring 55% domestic content for projects commenced after 2026, The IRS issued Notice 2023-38 in May 2023, which provides further guidance on the domestic content bonus.     

Projects that are located within an energy community can receive the Energy Community Bonus. To qualify, a facility must be located at one of the following: (i) a brownfield site, (ii) a metropolitan or non-metropolitan statistical area which (A) has (or, at any time during the period beginning after December 31, 2009, had) 0.17% or greater direct employment or 25% or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas, or (B) has an unemployment rate above the national average for the previous year, or (iii) a census tract or a census tract that is adjoining a census tract in which a coal mine has closed after 1999 or a coal-fired electric generating unit was retired after 2009. For projects that are under 1 MW and projects that are larger than 1 MW and meet the labor requirements specified above, the Energy Community Bonus increases the tax credit by 10 percentage points. For larger projects that do not meet the labor requirements, the Energy Community Bonus increases the tax credit by 2 percentage points. 

The Treasury Department issued Notice 2023- 29 in April 2023, which provides initial guidance on the Energy Community Bonus Credit. The Treasury Department later updated and clarified its guidance in June 2023 with Notice 2023-45. The Treasury Department also issued Notice 2023-47 in June 2023, which includes lists of information that taxpayers may use to determine whether they meet certain requirements under the Statistical Area Category or the Coal Closure Category. The Department of Energy has also released a GIS map showing the locations of qualifying energy communities.  

Solar and wind facilities less than 5 MW may also be eligible for low-income bonuses. A project built in a low-income community as defined by the New Markets Tax Credit or on Indian Land can receive an increased tax credit of 10 percentage points. The Department of Energy has also released a GIS map showing qualifying low-income communities. A project associated with a low-income residential building project or a low-income economic benefit project can receive an increased tax credit of 20 percentage points. These bonuses are capped at 1.6 GW of projects per year.  The IRS issued Notice 2023-17 in February 2023, to allocate the cap across different categories of projects. The IRS also issued final regulations in August to provide further guidance on the iow-income communities bonus credit. Additional information can be found on the U.S. Department of Energy's webpage dedicated to the ow-income communities bonus credit.

Eligible Technologies

• Solar Technologies
• Fuel Cells
• Wind Turbines 
• Geothermal Systems
• Microturbines
• Combined Heat and Power (CHP)
• Offshore Wind
• Waste Energy Recovery. Qualified waste energy recovery property means property that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equipment is not the generation of electricity. The term “waste energy recovery property” does not include any property that has a capacity in excess of 50 megawatts.
• Energy Storage Systems, both paired with generation and installed as a stand-alone system
• Thermal Energy Storage Systems
• Qualified Biogas Property
• Microgrid Controllers
• Interconnection Property associated with the installation of energy property with a maximum net output of not greater than 5 MW-AC to provide for the transmission or distribution of the electricity produced or stored by such property, and which are properly chargeable to the capital account of the taxpayer.

Credit Monetization

Section 13801 of The Inflation Reduction Act of 2022 also established procedures for other parties to monetize certain tax credits, including this one, for equipment placed in service on or after January 1, 2023 and through December 31, 2032. 

The direct pay option allows non-taxable entities to directly monetize certain tax credits. The provisions apply to nonprofits, a state or political subdivision thereof, the Tennessee Valley Authority, Indian tribal governments (as defined in Section 30D(g)(9)), any Alaska Native Corporation (as defined in Section 3 of the Alaska Native Claims Settlement Act), or any corporation operating on a cooperative basis which is engaged in furnishing electric energy to persons in rural areas. Such applicable entities can elect to be treated as having made a tax payment equal to the value of the tax credit they would otherwise be eligible to claim. The entity can then claim a refund for the excess taxes they are deemed to have paid. The option effectively makes this tax credit refundable for these entities. 

The act also allows eligible taxpayers to transfer all or a portion of their eligible tax credits to an unrelated taxpayer. Transfers must be reported to IRS and only one transfer is permitted. Must be elected no later than the due date for tax filing for the tax year the tax credit is claimed.

Clean Electricity Investment Tax Credit (48E)

Section 13702 of the Inflation Reduction Act created a new tax credit, the Clean Electricity Investment Tax Credit to replace the traditional ITC for systems placed in service on or after January 1, 2025. The tax credit is functionally similar to the ITC, but is not technology-specific. It applies to all generation facilities and energy storage systems that have an anticipated greenhouse gas emissions rate of zero. The credit amount is generally calculated in the same manner as described above, but will be phased out as the U.S. meets greenhouse gas emission reduction targets. For a project whose construction is commenced in the year following the year in which greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25% of the 2022 levels, the tax credit will not be reduced. However, for projects commenced in the second year following the target being met, the tax credit will be worth 75% of what it would otherwise be. Projects commenced in the third year will receive a credit worth 50%, and all projects commenced after then will not be eligible for a tax credit. 

According to Section 136 of the U.S. Code, energy conservation subsidies provided (directly or indirectly) to customers by public utilities* are non-taxable. This exclusion does not apply to electricity-generating systems registered as "qualifying facilities" under the Public Utility Regulatory Policies Act of 1978 (PURPA). If a taxpayer claims federal tax credits or deductions for the energy conservation property, the investment basis for the purpose of claiming the deduction or tax credit must be reduced by the value of the energy conservation subsidy (i.e., a taxpayer may not claim a tax credit for an expense that the taxpayer ultimately did not pay).

The term "energy conservation measure" includes installations or modifications primarily designed to reduce consumption of electricity or natural gas, or to improve the management of energy demand. Eligible dwelling units include houses, apartments, condominiums, mobile homes, boats and similar properties. If a building or structure contains both dwelling units and other units, any subsidy must be properly allocated.

The definition of "energy conservation measure" implies that utility rebates for residential solar-thermal projects and photovoltaic (PV) systems may be non-taxable. However, the IRS has not ruled definitively on this issue. Taxpayers considering using this provision for a renewable energy system should discuss the details of the project with a tax professional. Other types of utility subsidies that may come in the form of credits or reduced rates might also be non-taxable, according to IRS Publication 525.


* The term "public utility" is defined as an entity "engaged in the sale of electricity or natural gas to residential, commercial, or industrial customers for use by such customers." The term includes federal, state and local government entities.

Note: The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. Bonus depreciation steps down by 20% each year beginning with 80% in 2023..  

Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. A number of renewable energy technologies are classified as five-year property (26 USC § 168(e)(3)(B)(vi)) under the MACRS, which refers to 26 USC § 48(a)(3)(A), often known as the energy investment tax credit or ITC to define eligible property. Such property currently includes*:

• a variety of solar-electric and solar-thermal technologies
• fuel cells and microturbines
• geothermal electric
• direct-use geothermal and geothermal heat pumps
• small wind (100 kW or less)
• combined heat and power (CHP)
• the provision which defines ITC technologies as eligible also adds the general term "wind" as an eligible technology, extending the five-year schedule to large wind facilities as well.

In addition, for certain other types of renewable energy property, such as biomass or marine and hydrokinetic property, the MACRS property class life is seven years. Eligible biomass property generally includes assets used in the conversion of biomass to heat or to a solid, liquid or gaseous fuel, and to equipment and structures used to receive, handle, collect and process biomass in a waterwall, combustion system, or refuse-derived fuel system to create hot water, gas, steam and electricity. Marine and hydrokinetic property includes facilities that utilize waves, tides, currents, free-flowing water, or differentials in ocean temperature to generate energy. It does not include traditional hydropower that uses dams, diversionary structures, or impoundments.

The 5-year schedule for most types of solar, geothermal, and wind property has been in place since 1986. The federal Energy Policy Act of 2005 (EPAct 2005) classified fuel cells, microturbines and solar hybrid lighting technologies as five-year property as well by adding them to § 48(a)(3)(A). This section was further expanded in October 2008 by the addition of geothermal heat pumps, combined heat and power, and small wind under The Energy Improvement and Extension Act of 2008.

Bonus Depreciation

Bonus Depreciation has been sporadically available at different levels during different years. Most recently, The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023.

Bonus Depreciation History

The 50% first-year bonus depreciation provision enacted in 2008 was extended (retroactively for the entire 2009 tax year) under the same terms by the American Recovery and Reinvestment Act of 2009 (H.R. 1), enacted in February 2009. It was renewed again in September 2010 (retroactively for the entire 2010 tax year) by the Small Business Jobs Act of 2010 (H.R. 5297). In December 2010 the provision for bonus depreciation was amended and extended yet again by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853). Under these amendments, eligible property placed in service after September 8, 2010 and before January 1, 2012 was permitted to qualify for 100% first-year bonus depreciation. The December 2010 amendments also permitted bonus depreciation to be claimed for property placed in service during 2012, but reverted the allowable amount from 100% to 50% of the eligible basis. The 50% first-year bonus depreciation allowance was further extended for property placed in service during 2013 by the American Taxpayer Relief Act of 2012 (H.R. 8, Sec. 331) in January 2013. The Tax Increase Prevention Act Of 2014 (H.R. 5771, Sec. 125), extended  these provisions through to December 31, 2014, and thus retroactively for the 2014 tax year.

For more information on the federal MACRS, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562. The IRS web site provides a search mechanism for forms and publications. Enter the relevant form, publication name or number, and click "GO" to receive the requested form or publication. For guidance on bonus depreciation, including information relating to the election to claim either 50% or 100% bonus depreciation, retroactive elections to claim 50% bonus depreciation for property placed in service during 2010, and eligible property, please see IRS Rev. Proc. 2011-26.


*Note that the definitions of eligible technologies included in this entry are somewhat simplified versions of those contained in tax code, which often contain additional caveats, restrictions, and modifications. Those interested in this incentive should review the relevant sections of the code in detail prior to making business decisions.

According to Section 136 of the U.S. Code, energy conservation subsidies provided (directly or indirectly) to customers by public utilities* are non-taxable. This exclusion does not apply to electricity-generating systems registered as "qualifying facilities" under the Public Utility Regulatory Policies Act of 1978 (PURPA). If a taxpayer claims federal tax credits or deductions for the energy conservation property, the investment basis for the purpose of claiming the deduction or tax credit must be reduced by the value of the energy conservation subsidy (i.e., a taxpayer may not claim a tax credit for an expense that the taxpayer ultimately did not pay).

The term "energy conservation measure" includes installations or modifications primarily designed to reduce consumption of electricity or natural gas, or to improve the management of energy demand. Eligible dwelling units include houses, apartments, condominiums, mobile homes, boats and similar properties. If a building or structure contains both dwelling units and other units, any subsidy must be properly allocated.

The definition of "energy conservation measure" implies that utility rebates for residential solar-thermal projects and photovoltaic (PV) systems may be non-taxable. However, the IRS has not ruled definitively on this issue. Taxpayers considering using this provision for a renewable energy system should discuss the details of the project with a tax professional. Other types of utility subsidies that may come in the form of credits or reduced rates might also be non-taxable, according to IRS Publication 525. 


* The term "public utility" is defined as an entity "engaged in the sale of electricity or natural gas to residential, commercial, or industrial customers for use by such customers." The term includes federal, state and local government entities.

Note: The Inflation Reduction Act of 2022 (H.R. 5376) made several significant changes to this tax credit, including extending the expiration date, providing for new bonus credits, and establishing new criteria to qualify for the full credit. It also phases out this tax credit under section 45 of the Internal Revenue Code at the end of 2024 and replaces it with a new technology-neutral tax credit under section 45Y of the Internal Revenue Code. The summary below describes the current section 45 tax credit as modified by the Inflation Reduction Act, and below that, the new 45Y tax credit.   

The federal renewable electricity production tax credit (PTC) is an inflation-adjusted per-kilowatt-hour (kWh) tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. The duration of the credit is 10 years after the date the facility is placed in service.

Originally enacted in 1992, the PTC has been renewed and expanded numerous times, most recently by the Inflation Reduction Act of 2022. That bill established new prevailing wage and apprenticeship requirements for larger system to qualify for the full value of the tax credit -- 2.6 cents per kilowatt-hour (kWh) for wind, closed-loop biomass, and geothermal energy; 1.3 cents per kWh for open-loop biomass facilities, small irrigation power facilities, landfill gas facilities and trash facilities. In late-2022 or 2023, the Treasury Secretary will issue guidance for these new labor provisions. The credit for different project types and available bonus credits is described below.

Base Credit

Projects under 1 MW (or larger projects that are commenced no more than 60 days after the Treasury Secretary develops labor guidelines) do not need to meet the new labor standards established by the Inflation Reduction to receive the full 1.3 or 2.6 cents/kWh (depending on the facility type) tax credit. This amount may be adjusted annually for inflation. Such projects that begin construction after 2021 and before 2025 can receive the full tax credit. Note, projects that commence construction on or after January 1, 2025 can receive a tax credit under the new Clean Energy Production Tax Credit (45Y) described below. 

Projects over 1 MW that begin construction 60 days after the Treasury Secretary releases labor guidelines and no later than January 1, 2025 will receive a base tax credit of 0.5 cents/kWh. However, projects can qualify for the full tax credit if they ensure that all laborers and mechanics involved in the construction of the project or the maintenance of the project for the entire 10-year PTC period are paid wages at rates not less than prevailing wages. Projects must also ensure that a percentage of total labor hours are performed by qualified apprentices. The percent of hours increases over time to a maximum requirement of 15% in 2024 and thereafter. Note, projects that commence construction on or after January 1, 2025 can receive a tax credit under the new Clean Energy Production Tax Credit (45Y) described below. 

Bonus Credits

The Domestic Content Bonus increases the credit amount by 10% for projects in which 100% of any steel or iron that is a component of the facility and 40% of the manufactured products that are components of the facility were produced in the United States. Note, the required percentage of domestic manufactured products for offshore wind facilities is 20%. The IRS issued Notice 2023-38 in May 2023, which provided guidance on the domestic content bonus.     

The Energy Community Bonus increases the credit amount by 10% for projects that are located at one of the following: (i) a brownfield site, (ii) a metropolitan or non-metropolitan statistical area which (A) has (or, at any time during the period beginning after December 31, 2009, had) 0.17% or greater direct employment or 25% or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas, or (B) has an unemployment rate above the national average for the previous year, or (iii) a census tract or a census tract that is adjoining a census tract in which a coal mine has closed after 1999 or a coal-fired electric generating unit was retired after 2009. 

The Treasury Department issued Notice 2023- 29 in April 2023, which provided initial guidance on the Energy Community Bonus Credit. The Treasury Department later updated and clarified its guidance in June 2023 with Notice 2023-45. The Treasury Department also issued Notice 2023-47 in June 2023, which includes lists of information that taxpayers may use to determine whether they meet certain requirements under the Statistical Area Category or the Coal Closure Category. The Department of Energy has also released a GIS map showing the locations of qualifying energy communities.  

Credit Monetization

Section 13801 of The Inflation Reduction Act of 2022 also established procedures for other parties to monetize certain tax credits, including this one, for equipment placed in service on or after January 1, 2023 and through December 31, 2032. 

The direct pay option allows non-taxable entities to directly monetize certain tax credits. The provisions apply to nonprofits, a state or political subdivision thereof, the Tennessee Valley Authority, Indian tribal governments (as defined in Section 30D(g)(9)), any Alaska Native Corporation (as defined in Section 3 of the Alaska Native Claims Settlement Act), or any corporation operating on a cooperative basis which is engaged in furnishing electric energy to persons in rural areas. Such applicable entities can elect to be treated as having made a tax payment equal to the value of the tax credit they would otherwise be eligible to claim. The entity can then claim a refund for the excess taxes they are deemed to have paid. The option effectively makes this tax credit refundable for these entities. 

The act also allows eligible taxpayers to transfer all or a portion of their eligible tax credits to an unrelated taxpayer. Transfers must be reported to IRS and only one transfer is permitted. Must be elected no later than the due date for tax filing for the tax year the tax credit is claimed.

Clean Energy Production Tax Credit (45Y)

Section 13701 of the Inflation Reduction Act created a new tax credit, the Clean Energy Production Tax Credit to replace the traditional PTC for systems placed in service on or after January 1, 2025. The tax credit is functionally similar to the PTC, but is not technology-specific. It applies to all generation facilities that have an anticipated greenhouse gas emissions rate of zero. The credit amount is generally calculated in the same manner as described above, and all technologies that satisfy the labor requirements will be eligible for the full value of the tax credit as adjusted for inflation. The credit will be phased out as the U.S. meets greenhouse gas emission reduction targets. For a project whose construction is commenced in the year following the year in which greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25% of the 2022 levels, the tax credit will not be reduced. However, for projects commenced in the second year following the target being met, the tax credit will be worth 75% of what it would otherwise be. Projects commenced in the third year will receive a credit worth 50%, and all projects commenced after then will not be eligible for a tax credit. 

Homeowners can take advantage of energy efficient mortgages (EEM) to either finance energy efficiency improvements to existing homes, including renewable energy technologies, or to increase their home buying power with the purchase of a new energy efficient home. The U.S. federal government supports these loans by insuring them through Federal Housing Authority (FHA) or Veterans Affairs (VA) programs. This allows borrowers who might otherwise be denied loans to pursue energy efficiency, and it secures lenders against loan default.

FHA Energy Efficient Mortgages
The FHA allows lenders to add up to 100% of energy efficiency improvements to an existing mortgage loan with certain restrictions. FHA mortgage limits vary by county, state and the number of units in a dwelling. See their website for more details. These mortgages were previously limited to $8,000.The maximum amount of the portion of an energy efficient mortgage allowed for energy improvements is now the lesser of 5% of:

• The value of the property,
• 115% of the median area price of a single-family dwelling, or
• 150% of the Freddie Mac conforming loan limit

Loan amounts may not exceed the projected savings of the energy efficiency improvements. These loans may be combined with FHA 203 (h) mortgages available to victims of presidentially-declared disasters and with financing offered through the FHA 203 (k) rehabilitation program. FHA loan limits do not apply to the EEM. Borrowers must obtain a home energy assessment by a qualified energy rater, assessor, or auditor using whole-assessment standards, protocols, and procedures. 

Borrowers may include closing costs and the up-front mortgage insurance premium in the total cost of the loan. The loan is available to anyone who meets the income requirements for FHA’s Section 203 (b), provided the applicant can meet the monthly mortgage payments. New and existing owner-occupied homes of up to two units qualify for this loan. Cooperative units are not eligible. Homebuyers should submit applications to their local HUD Field Office through an FHA-approved lending institution.

Department of Veterans Affairs (VA) Energy Efficient Mortgages
The VA insures EEMs to be used in conjunction with VA loans either for the purchase of existing homes or for refinancing loans secured by the dwelling. Homebuyers may borrow up to $3,000 if only documentation of improvement costs or contractor bids is submitted, or up to $6,000 if the projected energy savings are greater than the increase in mortgage payments. Loans may exceed this amount at the discretion of the VA. Applicants may not include the cost of their own labor in the total amount. No additional home appraisal is needed, but applicants must submit a HER, contractor bids and certain other documentation. The VA insures 50% of the loan if taken by itself, but it may insure less if the total value of the mortgage exceeds a certain amount.

This mortgage is available to qualified military personnel, reservists and veterans. Applicants should secure a certificate of eligibility from their local lending office and submit it to a VA-approved private lender. If the loan is approved, the VA guarantees the loan when it is closed.

Conventional EEMs
Conventional mortgages are not backed by a federal agency. Private lenders sell loans to Fannie Mae and Freddie Mac, which in turn allows homebuyers to borrow up to 15% of an existing home’s appraised value for improvements documented by a HER.

Fannie Mae also lends up to 5% for Energy Star new homes. Fannie Mae EEMs are available to single-family, owner-occupied units, and Fannie Mae provides EEMs to those whose income might otherwise disqualify them from receiving the loans by allowing approved lenders to adjust borrowers’ debt-to-income ratio by 2%. The value of the improvements is immediately added to the total appraised value of the home.

Freddie Mac offers GreenChOICE mortgages to "provide greater affordability for borrowers, offer more flexibility and combine the flexibilities of Home Possible Mortgages to offer borrowers additional affordable financing opportunities." Borrowers should apply directly to the lender. Click here for more details.

ENERGY STAR Partnership for Lenders
To promote EEMs and lenders who offer them, the federal ENERGY STAR program offers a partnership program for lenders who provide EEMs to borrowers. Becoming a partner allows lenders to utilize the Energy Star brand to promote themselves as Energy Star partners offering EEMs. To become a lender, partner lenders must first provide proof that they know how to write EEMs. To maintain their partnership benefits, lenders must write a certain number of EEMs per year. Energy Star does not have a lender certification program or process. Click here for more information about ENERGY STAR's lender partnership program, and here to access the partner locator tool. ENERGY STAR requires that its lender partners provide EEMs to qualified borrowers regardless of whether it is an FHA EEM, Fannie Mae EEM, or VA EEM.

Note: The U.S. Department of Agriculture's Rural Development issues periodic Notices of Solicitation of Applications for the Rural Energy for America Program (REAP) in the Federal Register. The FY 2018 solicitation for the REAP program includes a total budget of approximately $800 million. 

The Rural Energy for America Program (REAP) provides financial assistance to agricultural producers and rural small businesses in America to purchase, install, and construct renewable energy systems, make energy efficiency improvements to non-residential buildings and facilities, use renewable technologies that reduce energy consumption, and participate in energy audits and renewable energy development assistance.

Renewable energy projects for the Renewable Energy Systems and Energy Efficiency Improvement Guaranteed Loan and Grant Program include wind, solar, biomass and geothermal, and hydrogen derived from biomass or water using wind, solar, or geothermal energy sources. These grants are limited to 25% of a proposed project's cost, and a loan guarantee may not exceed $25 million. The combined amount of a grant and loan guarantee must be at least $5,000 (with the grant portion at least $1,500) and may not exceed 75% of the project’s cost. In general, a minimum of 20% of the funds available for these incentives will be dedicated to grants of $20,000 or less. For more information on grant, loan guarantees, loan financing, and opportunities for combinations thereof, visit the USDA website. 

Application due dates are published annually in the Notice of Funding Availability. 

Eligibility

Grants and Guaranteed Loans are generally available to small businesses and agricultural producers and other entities as determined by USDA. To be eligible for REAP grants and guaranteed loans, applicants must demonstrate sufficient revenue to cover any operations and maintenance expense as well as any applicable debt service of the project for the duration of the guaranteed loan or grant. Rural small businesses must be located in rural areas, but agricultural producers may be located in non-rural areas.

Eligible project costs include purchasing energy efficiency improvements or a renewable energy system, energy audits or assessments, permitting and licensing fees, and business plans and retrofitting. For new construction the replacement of older equipment with more efficient equipment may be eligible as a project cost only when a new facility is planned to be more efficient and similarly sized than the older facility. Working capital and land acquisition are only eligible for loan guarantees.

For more information regarding applicant and project eligibility for loans and grants, visit the USDA REAP eligibility webpage, read the eligibility requirements in the most recent Solicitation of Applications for REAP funding in the Federal Registry, and/or contact your state rural energy coordinator.

Regional rural energy coordinators provide loan and grant applications upon request.

History

The Food, Conservation, and Energy Act of 2008 (H.R. 2419), enacted by Congress in May 2008, converted the federal Renewable Energy Systems and Energy Efficiency Improvements Program,* into the Rural Energy for America Program (REAP). Similar to its predecessor, the REAP promotes energy efficiency and renewable energy for agricultural producers and rural small businesses through the use of (1) grants and loan guarantees for energy efficiency improvements and renewable energy systems, and (2) grants for energy audits and renewable energy development assistance. Congress has allocated funding for the new program in the following amounts: $55 million for FY 2009, $60 million for FY 2010, $70 million for FY 2011, and $70 million for FY 2012. REAP is administered by the U.S. Department of Agriculture (USDA). In addition to these mandatory funding levels, up to $25 million in discretionary funding may be issued each year. The American Taxpayer Relief Act of 2012 (H.R. 8) extended discretionary funding for FY 2013. The 2014 Farm Bill reauthorized the USDA to offer these programs and removed the mandate to offer grants for feasibility studies.

* The Renewable Energy Systems and Energy Efficiency Improvements Program was created by the USDA pursuant to Section 9006 of the 2002 federal Farm Security and Rural Investment Act of 2002. Funding in the amount of $23 million per year was appropriated for each fiscal year from FY 2003-2007. In March 2008, the USDA announced that it would accept $220.9 million in applications for grants, loan guarantees, and loan/grant combination packages under the Renewable Energy Systems and Energy Efficiency Improvements Program. The application deadline was June 16, 2008.

Land grant colleges and universities are referred to in the summary table as "schools" and "institutional" eligible sectors. K-12 schools are not eligible for this grant.

The U.S. Department of Energy's (DOE) Office of Indian Energy Policy and Programs promotes tribal energy sufficiency, economic growth, and employment on tribal lands through the development of renewable energy and energy efficiency technologies. The program provides financial assistance, technical assistance, and education and training to tribes for the evaluation and development of renewable energy resources and energy efficiency measures.

DOE's program offerings consist of program management through DOE headquarters, program implementation and project management through DOE's field offices, and technical support through DOE laboratories. Program management is carried out by DOE's Weatherization and Intergovernmental Program, which provides programmatic direction and funding to DOE field offices for program implementation. DOE's Golden Field Office solicits, awards, administers, and manages financial assistance agreements.

Program funding is awarded through a competitive process. Click here to view current program funding opportunities, and here to apply for technical assistance.

Note: Section 13302 of The Inflation Reduction Act of 2022 (H.R. 5376) extended the expiration date and modified the phase down of this tax credit. It also made stand-alone energy storage systems eligible for the credit, and biomass heaters ineligible for the credit. Biomass heaters are now eligible for the residential energy efficiency tax credit. The summary below reflects the credit after the enactment of H.R. 5376.

A taxpayer may claim a credit for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. 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 on-site 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 below.

Solar-electric property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• 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, 2034.
• The home served by the system does not have to be the taxpayer’s principal residence.

Solar water-heating property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• 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, 2034.
• Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by 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.

Fuel cell property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• The maximum credit is $500 per half kilowatt (kW).
• The fuel cell must have a nameplate capacity of at least 0.5 kW of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.
• In case of joint occupancy, the maximum qualifying costs that can be taken into account by all occupants for figuring the credit is $1,667 per 0.5 kW. This does not apply to married individuals filing a joint return. The credit that may be claimed by each individual is proportional to the costs he or she paid.
• The home served by the system must be the taxpayer’s principal residence.

Small wind-energy property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• 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, 2034.
• The home served by the system does not have to be the taxpayer’s principal residence.

Geothermal heat pumps

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• 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, 2034.
• 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

Battery Storage Systems (Standalone Systems)

• 0% for systems placed in service before 1/1/2023
• 30% for systems placed in service after 12/31/2022 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• The system must have a capacity of at least 3 kilowatt hours
• The home served by the system does not have to be the taxpayer’s principal residence.

Significantly, The American Recovery and Reinvestment Act of 2009 repealed a previous limitation on the use of the credit for eligible projects also supported by "subsidized energy financing." For projects placed in service after December 31, 2008, this limitation no longer applies.

Energy Storage

Prior to the enactment of the Inflation Reduction Act of 2022, the federal tax code did not explicitly reference energy storage, so stand-alone energy storage systems did not qualify for the tax credit.  However, the IRS issued Private Letter Rulings in 2013 and 2018, which address energy storage paired with PV systems. In both cases, the IRS ruled that the energy storage equipment when paired with PV met the statutory definition of a "qualified solar electric property expenditure," as was eligible for the tax credit. It is important to note that Private Letter Rulings only apply to the taxpayer who requested it, and do not establish precedent. Any taxpayer considering the purchase of an energy storage system should consult their accountant or other tax professional before claiming a tax credit.  

History

Established by The Energy Policy Act of 2005, the federal tax credit for residential energy property initially applied to solar-electric systems, solar water heating systems and fuel cells. The Energy Improvement and Extension Act of 2008 extended the tax credit to small wind-energy systems and geothermal heat pumps, effective January 1, 2008. Other key revisions included an eight-year extension of the credit to December 31, 2016; the ability to take the credit against the alternative minimum tax; and the removal of the $2,000 credit limit for solar-electric systems beginning in 2009. The credit was further enhanced in February 2009 by The American Recovery and Reinvestment Act of 2009, which removed the maximum credit amount for all eligible technologies (except fuel cells) placed in service after 2008.

Note: The Tax Cuts and Jobs Act of 2017 repealed section 54C of the Internal Revenue Code, which authorized the use of New CREBs. IRS Notice 2018-15  announced that the IRS will no longer process applications for or issue allocations of New CREBs. The summary below describes CREBs before they were repealed, and is here for historical purposes only. 

Clean renewable energy bonds (CREBs) may be used by certain entities -- primarily in the public sector -- to finance renewable energy projects. The list of qualifying technologies is generally the same as that used for the federal renewable energy production tax credit (PTC). CREBs may be issued by electric cooperatives, government entities (states, cities, counties, territories, Indian tribal governments or any political subdivision thereof), and by certain lenders.  The bondholder receives federal tax credits in lieu of a portion of the traditional bond interest, resulting in a lower effective interest rate for the borrower.* The issuer remains responsible for repaying the principal on the bond.

The Energy Improvement and Extension Act of 2008 (Div. A, Sec. 107) allocated $800 million for new Clean Renewable Energy Bonds (CREBs). In February 2009, the American Recovery and Reinvestment Act of 2009 (Div. B, Sec. 1111) allocated an additional $1.6 billion for New CREBs, for a total New CREB allocation of $2.4 billion. The Energy Improvement and Extension Act of 2008 also extended the deadline for previously reserved allocations ("Old CREBs") until December 31, 2009, and addressed several provisions in the existing law that previously limited the usefulness of the program for some projects. A separate section of the law extended CREBs eligibility to marine energy and hydrokinetic power projects.

Participation in the program is limited by the volume of bonds allocated by Congress for the program. Participants must first apply to the Internal Revenue Service (IRS) for a CREBs allocation, and then issue the bonds within a specified time period. The New CREBs allocation totaling $2.4 billion does not have a defined expiration date under the law; however, recent IRS solicitations for new applications require the bonds to be issued within 3 years after the applicant receives notification of an approved allocation (see History section below for information on previous allocations). Public power providers, governmental bodies, and electric cooperatives are each reserved an equal share (33.3%) of the New CREBs allocation. IRS Notice 2015-12, however, divided the remaining volume cap differently: $516,565,691.35 for public power providers, $597,134,963.60 for governmental bodies, and $280,778,469.00 for cooperative utilities.

The tax credit rate is set daily by the U.S. Treasury Department. Under past allocations, the credit could be taken quarterly on a dollar-for-dollar basis to offset the tax liability of the bondholder. However, under the new CREBs allocation, the credit has been reduced to 70% of what it would have been otherwise. Other important changes are described in IRS Notice 2009-33.

CREBs differ from traditional tax-exempt bonds in that the tax credits issued through CREBs are treated as taxable income for the bondholder. The tax credit may be taken each year the bondholder has a tax liability as long as the credit amount does not exceed the limits established by the federal Energy Policy Act of 2005. Treasury rates for prior CREB allocations, or "Old" CREBs are available here, while rates for New CREBs and other qualified tax credit bonds are available here.

In April 2009, the IRS issued Notice 2009-33, which solicited applications for the New CREB allocation and provided interim guidance on certain program rules and changes from prior CREB allocations. The expiration date for New CREB applications under this solicitation was August 4, 2009. Further guidance on CREBs is available in IRS Notices 2006-7 and 2007-26 to the extent that the program rules were not modified by 2008 and 2009 legislation. In October 2009, the Department of Treasury announced the allocation of $2.2 billion in new CREBs for 805 projects across the country. A new solicitation (IRS Announcement 2010-54) was issued in September 2010 for roughly $191 million in unallocated New CREB bond volume available only to electric cooperatives. The award announcement for this allocation was made in March 2011. It remains to be seen if or when the IRS will issue new funding announcements for Old CREB allocations which were not issued by the December 31, 2009 deadline, or New CREB allocations which miss the three-year issuance period.

History
The federal Energy Policy Act of 2005 (EPAct 2005) established Clean Energy Renewable Bonds (CREBs) as a financing mechanism for public sector renewable energy projects. This legislation originally allocated $800 million of tax credit bonds to be issued between January 1, 2006, and December 31, 2007. Following the enactment of the federal Tax Relief and Health Care Act of 2006, the IRS made an additional $400 million in CREBs financing available for 2008 through Notice 2007-26.

In November 2006, the IRS announced that the original $800 million allocation had been reserved for a total of 610 projects. The additional $400 million (plus surrendered volume from the previous allocation) was allocated to 312 projects in February 2008. Of the $1.2 billion total of tax-credit bond volume cap allocated to fund renewable-energy projects, state and local government borrowers were limited to $750 million of the volume cap, with the rest reserved for qualified municipal or cooperative electric companies.

For further information on CREBs, contact Zoran Stojanovic or Timothy Jones of the IRS Office of Associate Chief Counsel at (202) 622-3980. Questions on recent IRS Notice 2009-33 can be directed to Janae Lemley at (636) 255-1202.


*In March 2010 Congress enacted H.R. 2847 (Sec. 301) permitting New CREB issuers to make an irrevocable election to receive a direct payment -- a refundable tax credit -- from the Department of Treasury equivalent to and in lieu of the amount of the non-refundable tax credit which would otherwise be provided to the bondholder. This option only applies to New CREBs issued after the March 18, 2010 enactment of the law. In April 2010 the IRS issued Notice 2010-35 providing guidance on the direct payment option.

The Rural Energy for America Program (REAP) provides financial assistance to agricultural producers and rural small businesses in rural America to purchase, install, and construct renewable energy systems, make energy efficiency improvements to non-residential buildings and facilities, use renewable technologies that reduce energy consumption, and participate in energy audits and renewable energy development assistance.

Renewable energy projects for the Renewable Energy Systems and Energy Efficiency Improvement Guaranteed Loan and Grant Program include wind, solar, biomass and geothermal, and hydrogen derived from biomass or water using wind, solar, or geothermal energy sources. These grants are limited to 25% of a proposed project's cost, and a loan guarantee may not exceed $25 million. The combined amount of a grant and loan guarantee must be at least $5,000 (with the grant portion at least $1,500) and may not exceed 75% of the project’s cost. In general, a minimum of 20% of the funds available for these incentives will be dedicated to grants of $20,000 or less. For more information on grant, loan guarantees, loan financing, and opportunities for combinations thereof, visit the USDA website.

Application due dates are published annually in the Notice of Funding Availability.

Eligibility

Grants and Guaranteed Loans are generally available to small businesses and agricultural producers and other entities as determined by USDA. To be eligible for REAP grants and guaranteed loans, applicants must demonstrate sufficient revenue to cover any operations and maintenance expense as well as any applicable debt service of the project for the duration of the guaranteed loan or grant. Rural small businesses must be located in rural areas, but agricultural producers may be located in non-rural areas.

Eligible project costs include purchasing energy efficiency improvements or a renewable energy system, energy audits or assessments, permitting and licensing fees, and business plans and retrofitting. For new construction the replacement of older equipment with more efficient equipment may be eligible as a project cost only when a new facility is planned to be more efficient and similarly sized than the older facility. Working capital and land acquisition are only eligible for loan guarantees.

For more information regarding applicant and project eligibility for loans and grants, visit the USDA REAP eligibility webpage, read the eligibility requirements in the most recent Solicitation of Applications for REAP funding in the Federal Registry, and/or contact your state rural energy coordinator.

Regional rural energy coordinators provide loan and grant applications upon request.

History

The Food, Conservation, and Energy Act of 2008 (H.R. 2419), enacted by Congress in May 2008, converted the federal Renewable Energy Systems and Energy Efficiency Improvements Program,* into the Rural Energy for America Program (REAP). Similar to its predecessor, the REAP promotes energy efficiency and renewable energy for agricultural producers and rural small businesses through the use of (1) grants and loan guarantees for energy efficiency improvements and renewable energy systems, and (2) grants for energy audits and renewable energy development assistance. Congress has allocated funding for the new program in the following amounts: $55 million for FY 2009, $60 million for FY 2010, $70 million for FY 2011, and $70 million for FY 2012. REAP is administered by the U.S. Department of Agriculture (USDA). In addition to these mandatory funding levels, up to $25 million in discretionary funding may be issued each year. The American Taxpayer Relief Act of 2012 (H.R. 8) extended discretionary funding for FY 2013. The 2014 Farm Bill reauthorized the USDA to offer these programs and removed the mandate to offer grants for feasibility studies.

* The Renewable Energy Systems and Energy Efficiency Improvements Program was created by the USDA pursuant to Section 9006 of the 2002 federal Farm Security and Rural Investment Act of 2002. Funding in the amount of $23 million per year was appropriated for each fiscal year from FY 2003-2007. In March 2008, the USDA announced that it would accept $220.9 million in applications for grants, loan guarantees, and loan/grant combination packages under the Renewable Energy Systems and Energy Efficiency Improvements Program. The application deadline was June 16, 2008.

Land grant colleges and universities are referred to in the summary as "schools" and "institutional" eligible sectors. K-12 schools are not eligible for this grant.

New Mexico has a gross receipts tax structure for businesses instead of a sales tax. Businesses are taxed on the gross amount of their business receipts each year before expenses are deducted. Revenue generated by the sale and installation of solar systems used to provide space heat, hot water, or electricity to the property on which it is installed may be deducted from gross receipts before the gross receipts tax is calculated. Dark-colored water tanks exposed to sunlight, including all equipment necessary for the installation and operation of the water tank as a part of the overall water system of the property, as well as a non-vented trombe wall, including all equipment necessary for the installation and operation of the trombe wall, are also eligible for this tax deduction.

The Alternative Energy Product Manufacturers tax credit may be claimed for manufacturing alternative energy products and components, including renewable energy systems, fuel cell systems, and electric and hybrid-electric vehicles. Alternative energy components include parts, assembly of parts, materials, ingredients, or supplies that are incorporated directly into end-use products. In 2011 S.B. 233 added "products extracted from or secreted by a single cell photosynthetic organism" to the list of eligible alternative energy products.

Tax Credit

The total amount of the credit is approved by the Taxation and Revenue Department and is not to exceed 5% of the taxpayer’s qualified expenditures. A qualified expenditure is the purchase of manufacturing equipment made after July 1, 2006.

Eligibility

To be eligible to claim a credit, the taxpayer must employ at least one new full-time employee for every $500,000 of expenditures up to $30,000,000, and at least one new full-time employee for every $1,000,000 of expenditures over $30,000,000. 

Carry Over

The alternative energy product manufacturers tax credit may only be deducted from the taxpayer's modified combined tax liability, which is the total liability for the reporting period for the gross receipts, compensating tax, and withholding tax. Any portion of the alternative energy product manufacturers tax credit that remains unused at the end of the taxpayer's reporting period may be carried forward for 5 years. 

Note: The Tax Cuts and Jobs Act (HR 1) of 2017 repealed the use of tax credit bonds effective January 1, 2018.  Issuers of QECBs that elected to receive direct payments from the Treasury issued on or before December 31, 2017, consistent with the Internal Revenue Code (Section 54D), will continue to receive direct payments. The summary presented below is for historical purposes. 

The Energy Improvement and Extension Act of 2008, enacted in October 2008, authorized the issuance of Qualified Energy Conservation Bonds (QECBs) that may be used by state, local and tribal governments to finance certain types of energy projects. QECBs are qualified tax credit bonds, and in this respect are similar to new Clean Renewable Energy Bonds or CREBs. The October 2008 enabling legislation set a limit of $800 million on the volume of energy conservation tax credit bonds that may be issued by state and local governments. The American Recovery and Reinvestment Act of 2009, enacted in February 2009, expanded the allowable bond volume to $3.2 billion. In April 2009, the IRS issued Notice 2009-29 providing interim guidance on how the program will operate and how the bond volume will be allocated. Subsequently, H.R. 2847 enacted in March 2010 introduced an option allowing issuers of QECBs and New CREBs to recoup part of the interest they pay on a qualified bond through a direct subsidy from the Department of Treasury. Guidance from the IRS on this option was issued in April 2010 under Notice 2010-35.

With tax credit bonds, generally the borrower who issues the bond pays back only the principal of the bond, and the bondholder receives federal tax credits in lieu of the traditional bond interest. The tax credit may be taken quarterly to offset the tax liability of the bondholder. The tax credit rate is set daily by the U.S. Treasury Department; however, energy conservation bondholders will receive only 70% of the full rate set by the Treasury Department under 26 USC § 54A. QECB rates are available here. Credits exceeding a bondholder's tax liability may be carried forward to the succeeding tax year, but cannot be refunded. Energy conservation bonds differ from traditional tax-exempt bonds in that the tax credits issued through the program are treated as taxable income for the bondholder.

For QECBs issued after March 18, 2010, the bond issuer may make an irrevocable election to receive a direct payment from the Department of Treasury equivalent to the amount of the non-refundable tax credit described above, which would otherwise accrue to the bondholder. The direct payment comes in the form of a refundable tax credit to the issuer in lieu of a tax credit to the bondholder. This option was formerly limited to Build America Bonds (see 26 USC § 6431, H.R. 2847 and IRS Notice 2010-35 for details). The advantage of either option is that it creates a lower effective interest rate for the issuer because the federal government subsidizes a portion of the interest costs.

In contrast to CREBs, QECBs are not subject to a U.S. Department of Treasury application and approval process. Bond volume is instead allocated to each state based on the state's percentage of the U.S. population as of July 1, 2008. Each state is then required to allocate a portion of its allocation to "large local governments" within the state based on the local government's percentage of the state's population. Large local governments are defined as municipalities and counties with populations of 100,000 or more. Large local governments may reallocate their designated portion back to the state if they choose to do so. IRS Notice 2009-29 contains a list of the QECB allocations for each state and U.S. territory. Implementing allocations and reallocations most often, but not always, takes place through State Energy Offices. As of this writing some states have yet to assign implementation responsibilities to a specific state agency.

The definition of "qualified energy conservation projects" is fairly broad and contains elements relating to energy efficiency capital expenditures in public buildings that reduce energy consumption by at least 20%; green community programs (including loans and grants to implement such programs); renewable energy production; various research and development applications; mass commuting facilities that reduce energy consumption; several types of energy related demonstration projects; and public energy efficiency education campaigns. In July 2012 the IRS issued Notice 2012-44 clarifying the meaning of "capital expenditures" and "green community program", and providing guidance on meeting the 20% energy consumption reduction requirement for energy -efficiency related capital expenditures in publicly-owned buildings (see 26 USC § 54D and IRS Notice 2012-44 for additional details). Renewable energy facilities that are eligible for CREBs are also eligible for QECBs.

Property Assessed Clean Energy (PACE) financing effectively allows property owners to borrow money to pay for energy improvements. The amount borrowed is typically repaid via a special assessment on the property over a period of years. In 2009 New Mexico enacted two separate bills authorizing local governments to offer these types of programs using different mechanisms. (Not all local governments in New Mexico offer PACE financing; contact your local government to find out if it has established a PACE financing program.)

Renewable Energy Financing District Act

New Mexico enacted S.B. 647 in 2009, which authorizes municipalities and counties to create renewable energy financing districts (REFD) for the purpose of providing financing for consenting property owners within the district to install renewable energy technologies. Eligible technologies include photovoltaics, solar thermal, geothermal, and wind.

A county is authorized to create a REFD in both its unincorporated and incorporated areas (provided that the county receives the consent of the impacted municipalities in an incorporated area). A municipality may create a REFD within its borders.

Municipalities and counties must follow the same process for establishing a REFD. First, it must draft and adopt a resolution that includes specific details of the district, such as the types of renewable energy technologies to be included. After passing the resolution, the county or municipality must hold a public hearing and solicit feedback from stakeholders. Finally, after considering the opinions and comments, it is required to establish the REFD by way of ordinance. Once the district is formed, individual property owners may opt in to participate per the terms of the program. Any financing a property owner receives is repaid as an assessment on their property tax and will be a senior lien on the property until fully repaid. The district may issue bonds to fund financing programs and the standards for the district board’s roles and powers.

Each district will be governed by a district board of five members. These members may be from the local government or individuals appointed by the local government (either way, the makeup of the board must be specified in the resolution and subsequent ordinance).

Solar Energy Improvement Special Assessment Act

New Mexico also enacted H.B. 572 in 2009, which authorizes a county to pass an ordinance that creates a “solar energy improvement special assessment” provision. The county itself is not authorized to provide funding directly to property owners; rather, it creates rules for certifying certain private banks and financing institutions as “solar energy improvement financing institutions.”

Solar energy improvement financing institutions are authorized to loan property owners up to 40% of the assessed value of the property for purposes of solar energy (photovoltaic or solar thermal) improvements. The property owner will enter into a direct agreement with a certified financial institution for the funding and they will be required to apply to the county as well, since the loan through the private institution will be paid via an assessment on their property tax and will constitute a lien on the property. The county devises the process for transferring funds collected via the special assessment to the participating financial institution. No county my pass an ordinance that contains additional provisions to those outlined in the law (e.g., an ordinance may not require property owners to receive an energy audit as a condition of participation). 

New Mexico has a gross receipts tax structure for businesses instead of a sales tax. Businesses are taxed on the gross amount of their business receipts each year before expenses are deducted. Receipts associated with the sale of certain wind turbine equipment to federal, state, or local government entities are exempt from being added to gross receipts. S.B. 201, signed in March 2010, extended this exemption to solar thermal electric and photovoltaic systems sold to a government on or after July 1, 2010.

New Mexico has a gross receipts tax structure for businesses instead of a sales tax. Businesses are taxed on the gross amount of their business receipts each year before expenses are deducted. Revenue generated by the sale and installation of a "qualified generating facility" may be deducted from gross receipts before the gross receipts tax is calculated. The deductions are allowed for a 10-year period starting the year construction begins. Qualified generating facilities have a minimum nameplate capacity of 1 megawatt (MW) and include geothermal thermal electric, photovoltaic, solar thermal electric, and recycled energy systems. Solar facilities with associated renewable energy storage facilities are also eligible.

To qualify for the exemption, the owner of a qualified generating facility must first obtain a certificate of eligibility from the Department of Environment. The owner must then present the certificate of eligibility to the Taxation and Revenue Department to obtain a nontaxable transaction certificate. The owner must then give the nontaxable transaction certificate to the seller of the equipment. This credit can be claimed on equipment leased in addition to equipment purchased. 

Residential solar energy systems are exempted from property tax assessments in New Mexico in most circumstances. For the purposes of determining property taxes, the value of a property cannot increase by the greater of 3% of the previous year's assessment or 6.1% of the assessment from two years ago according to state law. An assessment may exceed these restrictions, however, if physical improvements are made to the property. Under H.B. 233, enacted in 2010, residential solar systems will not be treated as physical improvements and therefore will not increase the value of the property for property tax purposes. Future assessments, however, can include the value of a solar energy system if the property is sold.

A solar energy system is defined as a system that provides space heat, water heat, or electricity to the property. The term specifically does not include windows, dark-colored water tanks, or non-vented trombe walls.

NOTE: The most recent solicitation for this program closed July 6, 2021. Please check the program website for information on future solicitations.

The U.S. Department of Agriculture (USDA) offers an ongoing grant program for the improvement of energy generation, transmission, and distribution facilities in rural communities. This program began in 2000. Eligibility is limited to projects in communities that have average home energy costs at least 275% above the national average. Retail power suppliers serving rural areas are eligible to apply for grant funding, including non-profits (cooperatives and limited dividend or mutual associations), commercial entities, state and local governments entities, and tribal governments. Under the most recent solicitation for projects, a total of $7 million was available for qualifying projects. Under this solicitation grants ranging from $100,000 to $3 million were available for a variety of activities, including:

• Electric generation, transmission, and distribution facilities;
• Natural gas or petroleum storage or distribution facilities;
• Renewable energy facilities used for on-grid or off-grid electric power generation, water or space heating, or process heating and power;
• Backup up or emergency power generation or energy storage equipment; and
• Weatherization of residential and community property, or other energy efficiency or conservation programs.

This grant program is not limited to renewable energy or energy conservation and efficiency measures, but these measures are eligible for this grant program.

The Drinking Water State Revolving Loan Fund provides low-cost financial assistance to eligible public water systems to finance the cost of repair and replacement of drinking water infrastructure, maintain or achieve compliance with the federal Safe Drinking Water Act (SWDA) requirements, and protect drinking water quality and public health.

The program offers principal forgiveness starting at 25% of project costs. Depending on determinations to be made by the New Mexico Financing Authority, additional principal forgiveness for up to a total of 75% of project costs may be awarded for communities that qualify as disadvantaged communities and certified "green projects". Green projects include green infrastructure, water conservation, energy efficiency improvements, or other environmentally innovative activities. See the website above for complete details, including the fiscal year 2017 Intended Use Plan.

NOTE: Only multifamily properties are eligible for the program. Single family homeowners are not eligible for this program. 

The Fannie Mae Green Financing Business provides mortgage financing to apartment buildings and cooperatives (with 5 or more units) to finance energy and water efficiency property improvements. Its green financing programs include Green Rewards, and preferential pricing for loans secured by a property with an eligible Green Building Certification. All Fannie Mae green loans are securitized as Green Mortgage Backed Securities (Green MBS). To learn more about these programs, multifamily property owners should coordinate with a Fannie Mae DUS Lender:  https://multifamily.fanniemae.com/about-multifamily/our-partners/dus-lenders

Green Rewards, launched in 2015, provides preferential pricing and up to an additional 5% of loan proceeds by including up to 75% of projected owner energy and water savings and 25% of projected tenant savings in the loan underwriting. Conventional and affordable multifamily properties, as well as cooperatives, seniors, military, and student housing properties are eligible for this program. To qualify for a Green Rewards loan the property owner must commit to making property improvements that are projected to reduce the whole property’s annual energy and water consumption by at least 30%, which a minimum of 15% must be attributable to savings in energy consumption. Properties may be located anywhere in US, and the selected property upgrades must be completed within 12 months of loan closing.

Fannie Mae also provides preferential pricing for an acquisition or refinance loan on a conventional or affordable property that has a current, eligible Green Building Certification per Fannie Mae Form 4250.

Please visit the Fannie Mae Green Financing website for more information and detailed program requirements.

H.B. 15, enacted in April 2021, established a new version of the personal tax credit and corporate tax credit for sustainable buildings in New Mexico. The tax credits apply to both commercial and residential buildings.

Commercial Buildings

Commercial buildings which have been registered and certified by the U.S. Green Building Council at LEED Gold or higher for new construction (NC), existing buildings (EB), core and shell (CS), or commercial interiors (CI), and are broadband- and electric vehicle-ready are eligible for a tax credit. The amount of the credit varies according to the square footage of the building, the level of certification achieved, and if it's affordable/low-income housing. Additional tax credit can be received if a commercial building is fully electric or certified zero-carbon, energy, waste, or water. Exact credit rates can be found through the program website.

Residential Buildings

Residential buildings certified as sustainable homes can also qualify for a tax credit. Eligible residential buildings include single-family homes and multi-family homes which are certified as either Build Green Gold or higher, LEED-H Gold or higher, or are Energy Star-certified manufactured homes; residential buildings must also be broadband- and electric vehicle-ready. The amount of the credit varies according to the square footage of the building, the level of certification achieved, and if it's affordable/low-income housing. Additional tax credit can be received if a residential building is fully electric or certified zero-carbon, energy, waste, or water. In existing residential buildings, tax credit can also be received for the installation of energy-saving technologies. Exact credit rates can be found through the program website.

Applying for the Tax Credit

Payout Schedule and Carry Forward

The taxpayer must then present their certificate of eligibility to the Taxation and Revenue Department to receive a document granting the Sustainable Building Tax Credit. If the total amount of a Sustainable Building Tax Credit is less than $100,000, a maximum of $25,000 can be applied to the taxpayer's income tax in that year and the next 3 years as needed depending on the amount of the credit. If the credit is more than $100,000, the taxpayer can claim the credit in increments of 25% in each of the 4 taxable years, including the year in which the credit is approved. If a taxpayer's tax liability is less than the amount of credit due, the excess credit may be carried forward for up to 7 years.

Transferability

The tax credit is transferable for nonprofits. Although nonprofits are not taxed by the state, they can apply for the certificate of eligibility and sell the credit to an entity that does pay taxes. Additionally, people and entities who do not owe enough taxes to take full advantage of the tax credit also have the option of selling the tax credit.

Other Tax Credits

A solar thermal system or a photovoltaic system may not be used as a component of qualification for this tax credit if a tax credit has already been claimed for it under the Solar Market Development Tax Credit.

Commercial Buildings

Commercial buildings which have been registered and certified by the U.S. Green Building Council at LEED Gold or higher for new construction (NC), existing buildings (EB), core and shell (CS), or commercial interiors (CI), and are broadband- and electric vehicle-ready are eligible for a tax credit. The amount of the credit varies according to the square footage of the building, the level of certification achieved, and if it's affordable/low-income housing. Additional tax credit can be received if a commercial building is fully electric or certified zero-carbon, energy, waste, or water. Exact credit rates can be found through the program website.

Renovated commercial buildings can receive a flat credit rate of $2.25/sq.ft if the building: 1) was renovated at least 10 years after construction, 2) is over 20,000 square feet, and 3) is broadband- and electric vehicle-ready; the maximum receivable credit is $150,000 per renovation. In existing commercial buildings that are less than 20,000 square feet and are broadband-ready, tax credit can also be received for the installation of energy-saving technologies.

Residential Buildings

Residential buildings certified as sustainable homes can also qualify for a tax credit. Eligible residential buildings include single-family homes and multi-family homes which are certified as either Build Green Gold or higher, LEED-H Gold or higher, or are Energy Star-certified manufactured homes; residential buildings must also be broadband- and electric vehicle-ready. The amount of the credit varies according to the square footage of the building, the level of certification achieved, and if it's affordable/low-income housing. Additional tax credit can be received if a residential building is fully electric or certified zero-carbon, energy, waste, or water.  In existing residential buildings, tax credit can also be received for the installation of energy-saving technologies. Exact credit rates can be found through the program website.

Applying for the Tax Credit

To receive the tax credit, the building owner must obtain a certificate of eligibility from the Energy, Minerals and Natural Resources Department after the building project has been completed (the project being either construction, renovation, or technology installation). The Department will only grant certificates in any given calendar year until the equivalent of $1,000,000 worth of certificates for newly constructed commercial buildings; $2,000,000 worth of certificates for newly constructed residential buildings that are not manufactured housing; $250,000 worth of certificates for newly constructed residential buildings that are manufactured housing; $1,000,000 worth of certificates for renovated commercial buildings; and $2,900,000 worth of certificates for energy-saving technology installation in both commercial and residential buildings combined have been awarded in that calendar year. If the aggregate limit for any type of sustainable building is not met, the leftover limit can be moved over to another type that has already reached its limit within that year; leftovers cannot be carried forward to another year.

Payout Schedule and Carry Forward

The taxpayer must then present their certificate of eligibility to the Taxation and Revenue Department to receive a document granting the Sustainable Building Tax Credit. If the total amount of a Sustainable Building Tax Credit is less than $100,000, a maximum of $25,000 can be applied to the taxpayer's income tax in that year and the next 3 years as needed depending on the amount of the credit. If the credit is more than $100,000, the taxpayer can claim the credit in increments of 25% in each of the 4 taxable years, including the year in which the credit is approved. If a taxpayer's tax liability is less than the amount of credit due, the excess credit may be carried forward for up to 7 years.

Transferability

The tax credit is transferable for nonprofits. Although nonprofits are not taxed by the state, they can apply for the certificate of eligibility and sell the credit to an entity that does pay taxes. Additionally, people and entities who do not owe enough taxes to take full advantage of the tax credit also have the option of selling the tax credit.

Other Tax Credits

A solar thermal system or a photovoltaic system may not be used as a component of qualification for this tax credit if a tax credit has already been claimed for it under the Solar Market Development Tax Credit.

New Mexico provides a 10% personal income tax credit (up to $6,000) for taxpayers that own a residence, business, or agricultural enterprise who purchase and install certified photovoltaic (PV) and solar thermal systems on their property. Eligible systems include grid-tied commercial and industrial PV systems, off-grid and grid-tied residential PV systems, active solar thermal systems, and systems with or without storage. To be eligible, systems must first be certified by the New Mexico Energy, Minerals and Natural Resources Department. The taxpayer must then apply for the tax credit with the New Mexico Taxation and Revenue Department within 12 months of installation. Note that solar pool or hot tub heaters and passive solar heating are not eligible for this tax credit.

If the credit exceeds a taxpayer's tax obligation, the taxpayer will receive the excess as a tax refund that year. Aggregate credit levels are capped annually at $12,000,000. These tax credits are set to expire December 31, 2032.

All relevant forms and eligibility requirements are available on the program website listed above.