Climate change has hit Colorado particularly hard in recent years, as evidenced by severe droughts, record heat, and several massive wildfires. Colorado has taken bold and aggressive initiatives towards lowering greenhouse gas emissions and incentivizing residents and businesses to become more energy efficient. The state has done this, in part, by offering incentives for installing solar energy and tax credits for certain electric vehicles.
If you're thinking about how you can become more energy efficient and perhaps save money along the way, it may be helpful to contact a professional who understands Colorado's tax credits and incentives for becoming more energy efficient in your home or business.
This article will explain some of the incentives Colorado currently offers to residents for going “green.” And if you want to learn more, contact the experienced attorneys at Newburn Law today to hear about how taking some of these green measures is a sound financial idea.
Why Does Colorado Want to Incentivize Residents?
The population of Colorado has dramatically increased in the past decade, especially in the larger urban areas, such as Denver. In fact, between 2010 and 2020, the state population grew at twice the national rate. Of course, with the denser population comes more pollution from vehicles and more demand for energy.
It follows, then, that Colorado faces ever-increasing challenges as it seeks to reduce carbon emissions from automobiles and other sources. Colorado has taken the lead in moving towards increasing energy efficiently and reducing dangerous greenhouse gases. For example, one such initiative, known as Drive Electric Colorado, supported through the Colorado Department of Transportation, has a goal of getting almost a million electric vehicles on Colorado roads by 2030. As of the end of 2021, there were only 47,000 electric vehicles registered in the state.
What Different Types of Tax Credits and Incentives Can You Get in Colorado for Going Green?
Going green in Colorado can save you money and help lower your carbon footprint. Colorado currently offers some of the best benefits and incentives for investing in energy efficient products. These include incentives for installing solar energy products, tax credits for electric vehicles, and sales tax exemptions for certain renewable energy equipment.
With more than 300 days of sunshine each year, Colorado is one of the best states for solar energy. Colorado was one of the first states in the country to implement the goal of producing around 30% of all of its power through renewable energy sources. Although Colorado no longer offers tax credits for solar energy, the state does offer numerous incentives and benefits to Colorado residents who want to use solar energy to power their homes. Incentives and benefits for using solar energy in Colorado include the following:
Net Metering. Colorado requires its utility companies to use this billing option for solar. Net metering allows Colorado residents to offset what they pay for supplemental electricity from the electric grid by overproducing energy with solar panels. Your utility provider gives you credit for the amount of excess energy you produce through solar and send to the electric grid.
Rebates from Utility Companies. Some Colorado utility companies offer rebates for installing energy efficient products or upgrades to homes, including solar panels. Low-income residents may also qualify for lower pricing, such as per watt rate deductions.
Property Tax Exemption for Residential Renewable Energy Equipment. Colorado has a property tax exemption that prohibits local governments from raising property taxes based on installation of a solar energy system.
Federal Solar Investment Tax Credit. Colorado residents may also claim the federal solar investment tax credit (ITC), which provides a credit amounting to 26% of the installation costs for a solar energy system. With the average system costing more than $20,000, this can provide a credit of around $5000.
Be aware, however, that the federal tax credit for home solar projects goes down to 22% in 2023. Tax credits will no longer be offered for home solar installations made after December 31, 2023, unless Congress extends the program.
Federal tax credits for commercial installations continue after 2023, but the tax credit is reduced to 10% for commercial systems placed in service in 2024 and after.
Sales and Use Tax Exemption for Renewable Energy Equipment
Colorado also offers a sales tax exemption for components used for producing renewable energy equipment. This means that the purchase of certain equipment is not subject to the Colorado state sales tax. This includes, for example, components for solar energy and wind turbines.
Colorado offers some of the best incentives for going green through tax credits offered to Colorado residents who buy or lease certain electric vehicles.
First, it's important to understand what a tax credit is, as opposed to a tax deduction because only tax credits are given for the purchase or lease of certain electric vehicles. A tax deduction reduces the income amount you're taxed on.
For example, if your taxable income is $60,000, a $10,000 tax deduction reduces your taxable income to $50,000. By contrast, a tax credit reduces the amount of taxes you owe. For example, if you owe $5000 in taxes, and you get a tax credit of $2000, then you'll owe $3000.
Electric vehicles are basically vehicles that run at least in part from batteries, which run off of electricity, as opposed to having internal combustion engines, which run off of gasoline. Electric vehicles come in three different models. It's important to understand the different types of electric vehicles because only certain electric vehicles are included in Colorado's current tax credits and incentives.
100% electric. These electric vehicles run solely on battery power and don't have internal combustion engines. They have zero emissions. You charge your battery by plugging it into a power source. Examples of these are the Nissan LEAF, Chevy Bolt, and Tesla vehicles. Colorado offers tax credits and incentives for these electric vehicles.
Hybrids. These electric vehicles have fuel combustion engines and batteries. The primary source is gasoline, with the batteries used to increase fuel efficiency. The batteries recharge while the fuel combustion engine is in use, and there is no plug-in. An example is a Toyota Prius. Colorado doesn't currently offer tax credits or incentives for hybrids.
Plug-in hybrids. These electric vehicles have fuel combustion engines and batteries, with the batteries used at the main power source. You can plug in the battery to recharge it from an electric power source, and you can also refuel your car. When the battery charge becomes low, the internal combustion engine kicks in. Examples of these electric vehicles are the Chevy Volt, Toyota Prius Prime, and the Mitsubishi Outlander. Colorado offers tax credits and incentives for most of these types of cars.
Certain tax credits are allowed for the purchase or lease of electric vehicles, including a Colorado state tax credit and a federal tax credit.
The Colorado Electric Vehicle Tax Credit. Under Colorado law, Colorado residents may take a:
- $2500 credit on your state income tax refund when you buy an electric vehicle from a qualifying manufacturer. The credit is applied when you buy the vehicle. (The amount of this credit will decrease to $2000 from 2023 to 2026).
- $1500 credit for a two-year minimum lease
Federal Law Electric Vehicle Tax Credit. Under U.S. federal law, you can take a tax credit of up to $7500 when you buy certain all-electric or plug-in hybrid vehicles. The amount of credit depends on the capacity of the battery to fuel the vehicle. The different credit amounts for different vehicle brands and models are listed here. You must be buying a new car (not used), and it must be from a qualifying manufacturer.
Although federal law doesn't give you a credit for leasing an electric vehicle, it does offer a credit to the leasing company, which may lower the cost of your lease.
Credits are available until the qualifying manufacturers have leased or sold at least 200,000 of the vehicles.
What Steps Do I Take to Receive the Tax Credit?
To claim your Colorado tax credit on an electric vehicle, you must claim it on your Colorado state income tax return for the tax year you bought or leased the vehicle, or you can assign the credit to the financing agency that finances the purchase or lease of the vehicle.
Whichever taxpayer claims the tax credit must submit the required documentation on their tax return, including Colorado's Form DR 0617 and a copy of the invoice, purchase agreement, or lease agreement.
To claim your federal tax credit on an electric vehicle, you must submit the IRS's Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit. If the vehicle is for your personal use, you must report the Form 8936 on your individual tax return. If the vehicle is for business use, you must use Form 3800, General Business Credit.
Contact us Today to Find out Your Options
If you're a Colorado resident and thinking about going green for tax or other purposes, contact the experienced attorneys at Newburn Law today. Our lawyers have extensive experience understanding energy law and tax credits associated with new energy laws. We can help you better understand these tax credits and incentives for buying energy-efficient products in Colorado.