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Tax Credits for Installing Biomass Stoves

Article From HouseLogic.com

By: Gil Rudawsky
Published: September 21, 2009

A federal tax credit makes energy-efficient biomass stoves a more affordable option for cutting winter heating bills.

Curling up in front of a cozy fire holds appeal for many homeowners. Unfortunately, while flickering flames are inviting most of the heat generated by a traditional fireplace escapes up the chimney rather than warming the house. Not only are you wasting money on firewood, but you also aren’t saving a dime on heating bills.

So-called biomass stoves, either freestanding models or inserts that fit inside a traditional fireplace, offer an energy-efficient solution. Most of these stoves burn wood or small wood pellets made of compressed sawdust. Some can use other sustainable energy sources like corn or grass for fuel.

The stoves burn cleaner and more efficiently than fireplaces, not to mention the wood-burning stoves of yesteryear, and are designed to radiate heat into a room. A typical biomass stove costs between $3,000 and $4,500, including installation, though a $1,500 federal tax credit can lower the price tag.

Claim your tax credit

To encourage homeowners to make energy-efficiency upgrades, Uncle Sam is offering a tax credit worth up to $1,500 on eligible improvements. Biomass stoves used to provide heat or heat water and that have a thermal efficiency rating (http://energystar.custhelp.com/cgi-bin/energystar.cfg/php/enduser/std_adp.php?p_faqid=2873) of at least 75% qualify. You can claim the credit for purchasing a stove for your primary residence during 2009 or 2010, whichever year it was installed. The credit is based on 30% of the total cost of the stove. If you don’t max out the credit on a stove, you can apply the remainder to other energy upgrades like replacing your roof (http://www.houselogic.com/articles/tax-credits-replacing-your-roof/) or adding insulation (http://www.houselogic.com/articles/tax-credits-adding-or-replacing-insulation/).

While the IRS didn’t explicitly state that biomass stove inserts are eligible for the credit, the Hearth, Patio & Barbecue Association (http://www.hpba.org/government-affairs/issues-legislation) contends they are. The trade group says the feds, specifically the U.S. Environmental Protection Agency, have always treated freestanding stoves and inserts the same. Homeowners should save receipts as well as a manufacturer’s certification statement like this one (http://www.regency-fire.com/Download/Regency_Manufacturers_Certification_Statement.pdf) that attests to the tax credit-worthiness of the insert. Use IRS Form 5695 to claim the credit. Consult a tax adviser.

The cost to install a biomass stove counts toward the tax credit. That’s an exception. For many other energy improvements eligible for the $1,500 tax credit, installation is excluded. This is likely due to safety concerns, says Rick Handley, former director for the Council for Northeast Governor’s Office Policy Research Center. Biomass stoves must be sized for a room, vented to the outside, and installed on proper surfaces at a safe distance from walls. Plus, incorrect installation may lower energy efficiency. Look for an installer who’s certified by the National Fireplace Institute (http://www.nficertified.org/pages_consumers/consumers-1.html).

Calculate the costs and savings

Buying a biomass stove is just the beginning. Now you’ll need a steady supply of fuel. Costs vary widely depending on time of year, availability, and the region where you live. Let’s say wood pellets are selling for $5 per 40-pound bag, and you use half a bag a day for six months. That adds up to $450, plus you need a dry place to store nearly two tons of pellets. Keep in mind too that a stove usually heats the portion of the house where it’s located, not the entire house. Budget three hours a week during heating season for fueling the stove and removing ash. (Seasoned wood and premium wood pellets leave less ash than low-grade fuels.)

In general, a wood or wood pellet stove can cut heating costs by 10% to 40% when combined with zone heating techniques, according to Leslie Wheeler of the Hearth, Patio & Barbecue Association. That’s a savings of $64 to $255 a year for the average homeowner. Though fuel prices can fluctuate wildly, savings could be even greater if you rely on pricier electricity or fuel oil for heating, rather than natural gas or propane.

A greener alternative

EPA regulations for biomass stoves changed in 1991, requiring them to be more efficient and to produce less smoke, about 60% to 80% less than older stoves or traditional fireplaces. Thermal efficiency for tax credit-qualified stoves must be rated at least 75%, meaning three-quarters or more of the fuel is turned into heat. While wood and wood pellet stoves are most common, biomass fuels can come in a number of renewable forms such as the aforementioned corn or even aquatic plants. Stoves capable of burning a variety of fuel types are typically more expensive.

In addition to lowering heating bills, biomass stoves reduce emissions as well as dependency on non-renewable fuels like heating oil, kerosene, and natural gas. But before you commit to one of these stoves, inquire about local laws governing wood burning. Some areas, particularly in California, limit when you can burn wood due to pollution concerns.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

Gil Rudawsky has been covering business and consumer issues as a reporter and an editor for 18 years, most recently as a business editor at the Rocky Mountain News. He lives in a house built in the 1930s, and always keeps the home’s character in mind when making upgrades.

Reprinted from HouseLogic (houselogic.com) with permission of the NATIONAL ASSOCIATION OF REALTORS®
Copyright 2009.  All rights reserved.

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