Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: What are some of the tax deductions you can take in the U.S., Europe, Asia and elsewhere when either buying an eco-friendly home or installing such systems in your home?
A: Tax deductions and incentives for buying eco-friendly homes or making green home improvements vary widely in the world. Some countries don’t even have any, such as Costa Rica, Singapore and Vietnam.
Here is a look at the policies in some countries, in alphabetical order:
Germany. "There are no direct tax deductions for eco-friendly houses/installations in Germany," said Roland Kahabka, partner at HEUSSEN, a German corporate law firm. "However; there are subsidies (e.g. for heating renovations) or special condition credits for particular energy efficiency measures." These vary countrywide and depend on the state, or Bundesland, in Germany.
The Kreditanstalt für Wiederaufbau, Germany’s promotional bank, offers special condition credits of a maximum of €50,000 each for building or redeveloping energy-efficient projects, including both residential and commercial.These credits can come in the form of a fixed-rate loan and deferral of loan payments for the first years, said Mr. Kahabka.
More:What Are Some Tax Write-Offs Related to the Purchase of a New Home?
Switzerland. In Switzerland, the legal situation in such cases may differ from canton to canton. Zurich, for example, is the most populous and economically most important of Switzerland’s 26 cantons. Plus its eco-friendly tax rules are consistent with those at the federal level.
"Priority is given to tax incentives in connection with real estate improvements. As a general rule, certain maintenance expenses for properties counted as personal assets are tax deductible," said Markus Aeschbacher, partner at HMP Hartmann Müller Partners, a law firm in Zurich. "Investments that save energy and protect the environment are equivalent to deductible maintenance expenses."
The amount that can be saved depends on the total expenses on items such as energy-efficient windows, heat insulation and energy-efficient appliances, he said.
These costs -- unlike all other investments, including general maintenance costs—are deductible, even if the investments increase the property value, Mr. Aeschbacher said.
Finally, "various incentive programs—the terms of which may vary from year to year—offer subsidies for different energy-efficiency measures (e.g., insulation of facades and roofs).
More:What Are the Biggest Tax Concerns When Investing in London’s Volatile Market?
United Kingdom. "There are no specific deductions available for the purchase of eco-friendly homes or the installation of such systems in residential property," said Patrick Harney, partner and head of Private Client at the London law firm Forsters.
However, there are tax incentives related to eco-friendly practices by homeowners, said Jeremy Robertson, Forsters solicitor: The "Feed-in Tariffs" ("FITs") scheme is an environmental program introduced to promote the generation of electricity through the use of small-scale renewable and low-carbon sources. If certain conditions are met, homeowners can be paid for electricity they generate from eligible systems, such as solar panels, or wind or hydro turbines on their property. Plus, households that use renewable technology to generate electricity mainly for their own use don’t have to pay income tax on FIT payments they receive.
Separately, a 20% "value added tax" ("VAT") is charged on most goods or services in the U.K. However, the VAT drops to 5% for certain home energy-saving products—such as solar panels, insulation and heat pumps—and their installation. A full list of products/services covered by this can be found here.
More:What Are the Tax Implications If I Buy a Property Under My Child’s Name?
United States Although many eco-friendly federal tax credits expired last year, credits for solar water heaters and solar panels are available through 2021, with no maximum limit. Tax credits for the purchase and installation of a solar water heater or solar panels start at 30% this year, decrease to 26% for tax year 2020 and drop to 22% for year 2021, according to ENERGY STAR, a federal program that promotes saving energy and protecting the environment through energy-efficient products, homes and buildings.
Existing homes, whether primary or secondary, as well as new construction qualify, but not rentals.
To find other incentives and rebates for U.S. homeowners, including those offered by utilities, visit energystar.gov.
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