NEW Wood and Pellet Heater Investment Tax Credit
A spending legislation and pandemic relief package was signed into law at the very end of December and included a long sought-after tax credit for wood and pellet heaters. These systems, whether they are stoves purchased to heat space or larger, whole home heating systems, will now qualify for a renewable energy investment tax credit (Section 25(D) of the Internal Revenue Code). Up until now, only solar, small wind, fuel cell, and geothermal systems qualified for this credit.
Beginning in 2021, consumers buying highly efficient wood or pellet stoves or larger residential biomass heating systems will be able to claim a 26% tax credit that is uncapped and based on the full cost (purchase and installation) of the unit. The credit will remain at 26% through this year and next, and then step down to 22 percent in 2023. This provision is part of the BTU Act, which has been actively supported by HPBA for the last several years and has been part of our Advocacy Day requests to Members of Congress.
What is this new tax credit?
- Effective Dates: The new tax credit under Sec. 25(D) of the U.S. Internal Revenue Code (“IRC” or “tax code”) came into effect on January 1, 2021 for qualifying purchases and installations completed on or after that date, through December 31, 2023
- Credit Amount: Creates a new tax credit of 26 percent of the purchase and installation costs (with no cap or lifetime limit) for tax years 2021 and 2022; moves down to 22 percent of purchase and installation costs in 2023 (under Sec. 25D of the U.S. tax code)
- Qualifying Products: Require qualifying products (any biomass-fueled heater) must have a thermal efficiency of at least 75 percent efficient per the higher heating value (HHV) of the fuel
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