(1) A resident individual who installs an alternative energy system that uses recognized nonfossil fuels to provide heat in their principal residence is allowed a credit for up to $500 of the cost against their individual income tax liability. If the credit exceeds their tax liability, it is not refundable, but may be carried forward for four years.

(a) ARM 42.4.104 describes systems that qualify for the credit. ARM 42.4.105 addresses standard components of conventional structures that do not qualify and the components of passive solar systems that do.

(b) The credit is allowed for a "low-emission wood or biomass combustion device." For tax years beginning after 2008, the definition was expanded to include a wood burning appliance that is qualified for the phase 2 white tag under the U.S. environmental protection agency method 28 OWHH for outdoor hydronic heaters, and a wood burning appliance that uses wood pellets as its primary source of fuel without regard to any emission standard.

(c) Geothermal systems fall within the definition of an alternative energy system, but a separate and larger credit of up to $1,500 is allowed for part of the cost of installing a geothermal system. Geothermal and alternative energy system credits may not be claimed for the same geothermal system or expenditures. The geothermal credit may be claimed by a resident individual installing a geothermal system in their existing principal residence or in a new principal residence they are constructing, or by the builder constructing the new residence, but not both.

(2) A credit against individual income tax is also provided to resident individuals for energy conservation investments in dwellings and in buildings used for commercial, industrial, and agricultural purposes. The credit is allowed for making some recognized energy conservation improvements to the physical attributes of existing structures, such as insulation, doors, and windows, if they meet specified energy conservation standards. The credit is also allowed for making energy conservation improvements to water, heating, and cooling systems in existing buildings if they meet specified energy conservation standards. The items allowed and the minimum standards are also set forth in ARM 42.4.202. Investment in a wood burning device that does not meet the energy conserving standards in ARM 42.4.202 does not qualify for the energy conserving credit provided in 15-32-109, MCA, but may qualify for the alternative energy system credit provided in 15-32-201, MCA, and ARM 42.1.104 if it is installed to provide heat for the taxpayer's principal dwelling.