Tax Benefits & Tax Credits for Energy Efficiency

(Article courtesy of www.energystar.gov)

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On February 17, 2009, President Obama signed a stimulus bill (The American Recovery and Reinvestment Act of 2009) that made some significant changes to the energy efficiency tax credits. The highlights are:

  • The tax credits that were previously effective for 2009, have been extended to 2010 as well.
  • The tax credit has been raised from 10% to 30%.
  • The tax credits that were for a specific dollar amount (ex $300 for a CAC), have been converted to 30% of the cost.
  • The maximum credit has been raised from $500 to $1500 for the two years (2009-2010). However, some improvements such as geothermal heat pumps, solar water heaters, and solar panels are not subject to the $1,500 maximum.
  • The $200 cap on windows has been removed.


Federal Tax Credits for Energy Efficiency include:



Tax Credits for Consumers

A tax credit can provide significant savings. It reduces the amount of income tax you have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a tax credit directly reduces the tax itself. You must refer to the final Internal Revenue Service (IRS) rules to determine what qualifies for the tax credit.

Home Improvements

Tax credits are now available for home improvements:

  • Must be "placed in service" from January 1, 2009 through December 31, 2010. The IRS defines "placed in service" as "when the property is ready and available for use."
  • Must be for taxpayers principal residence
  • Maximum amount is $1,500 in 2009 & 2010 for most home improvements (geothermal heat pumps, solar water heaters, solar panels, fuel cells, and windmills are not subject to this cap)
  • For record keeping, save your receipts and the Manufacturer Certification Statement3, OR for windows, you can save the ENERGY STAR label from your new windows
  • Improvements made in 2009 will be claimed on your 2009 taxes (filed by April 15, 2010). Use IRS Tax Form 5695 (2009 version), which will be available late 2009 or early 2010
  • If you are building a new home, you can qualify for the tax credit for photovoltaics, solar water heaters, small wind systems and fuel cells, but not the tax credits for windows, doors, insulation, roofs, HVAC, or non-solar water heaters. More.


Efficient Cars

Starting January 1, 2009, there is a new tax credit for Plug-in hybrid electric vehicles, starting at $2,500 and capped at $7,500 for cars and trucks (the credit is based on the capacity of the battery system). The first 250,000 vehicles sold get the full tax credit (then it phases out like the hybrid vehicle tax credits).

Tax credits are available to buyers of hybrid gasoline-electric, diesel, battery-electric, alternative fuel, and fuel cell vehicles. The tax credit amount is based on a formula determined by vehicle weight, technology, and fuel economy compared to base year models. These credits are available for vehicles placed in service starting January 1, 2006.

For hybrid and diesel vehicles made by each manufacturer, the credit will be phased out over 15 months starting after that manufacturer has sold 60,000 eligible vehicles. For vehicles made by manufacturers that have not reached the end of the phase-out, the credits will end for vehicles placed in service after December 31, 2010. See the IRS Website for updated information.

Solar Energy Systems

Tax credits are available for qualified solar water heating and photovoltaic systems. The credits are available for systems placed in service by December 31, 2016. The tax credit is for 30% of the cost of the system (up to $2,000 for solar water heaters). This credit is completely separate from the $1,500 home improvement credit.

Small Wind Energy Systems

Tax credits are available to homeowners who install residential small wind energy systems. The credits are available for systems placed in service by December 31, 2016. The tax credit is for 30% of the cost of the system, and is not limited to the $1,500 home improvement cap.

Fuel Cells

There is a consumer tax credit of up to 30% of the cost (up to $1,500 per 0.5 kW of capacity) for installing a qualified fuel cell and microturbine system. The credits are available for systems "placed in service" by December 31, 2016. This credit is not limited to the $1,500 home improvement cap.


SUMMARY OF TAX CREDITS FOR HOMEOWNERS

Product Category Product Type Tax Credit Specification Tax Credit Notes
Windows & Doors Exterior Windows and Skylights U factor <= 0.30

SHGC <= 0.30
30% of cost, up to $1,5002 NOT All ENERGY STAR labeled windows and skylights qualify for tax credit.
Windows & Doors Storm Windows Meets IECC1 in combination with the exterior window over which it is installed, for the applicable climate zone 30% of cost, up to $1,5002

Manufacturer's Certification Statement3 will list classes of exterior window (single pane, clear glass, double pane, low-E coating, etc.)4 that a product may be combined with to be eligible in specific climate zones.

Windows & Doors Exterior Doors U factor <= 0.30

SHGC <= 0.30
30% of cost, up to $1,5002

NOT ALL ENERGY STAR DOORS will qualify.

Windows & Doors Storm Doors In combination with a wood door assigned a default U-factor by the IECC1, and does not exceed the default U-factor requirement assigned to such combination by the IECC 30% of cost, up to $1,5002
Roofing Metal Roofs, Asphalt Roofs ENERGY STAR qualified 30% of cost, up to $1,5002

ALL ENERGY STAR labeled metal and asphalt roofs qualify for the tax credit.

Must be expected to last 5 years OR have a 2 year warranty.
Insulation Insulation Meets 2009 IECC & Amendments 30% of cost, up to $1,5002

For insulation to qualify, its primary purpose must be to insulate. (example: vapor retarders are covered, siding does not qualify).

Must be expected to last 5 years OR have a 2 year warranty
HVAC Central A/C Split systems:
EER >=13
SEER >= 16

Package systems:
EER >= 12
SEER >= 14
30% of cost, up to $1,5002

To verify tax eligibility, ask your HVAC contractor to provide the Manufacturer Certification Statement for the equipment you plan to purchase, or search the Manufacturer's website.

Note: NOT ALL ENERGY STAR products will qualify for the tax credit.

ENERGY STAR specification:
Split systems:
EER >= 12
SEER >= 14.5

Package systems:
EER >= 11
SEER >= 14

HVAC Air Source Heat Pumps Split systems
HSPF >= 8.5
EER >= 12.5
SEER >= 15

Package systems
HSPF >= 8
EER >= 12
SEER >= 14
30% of cost, up to $1,5002

Note: NOT ALL ENERGY STAR products will qualify for the tax credit.

ENERGY STAR specification:
Split systems:
HSPF >= 8.2
EER >= 12
SEER >= 14.5

Package systems:
HSPF >= 8
EER >= 11
SEER >= 14

HVAC Natural Gas or Propane Furnace AFUE >=95 30% of cost, up to $1,5002

Note: NOT ALL ENERGY STAR products will qualify for the tax credit.

ENERGY STAR Specification:

Gas Furnaces: AFUE >= 90

Oil Furnaces: AFUE >= 85

Boilers: AFUE >= 85

HVAC Oil Furnace

AFUE >= 90

30% of cost, up to $1,5002
HVAC Gas, Propane, or Oil Hot Water Boiler

AFUE >= 90

30% of cost, up to $1,5002
HVAC Advanced Main Air Circulating Fan No more than 2% of furnace total energy use 30% of cost, up to $1,5002
Geo-Thermal Heat Pump Geo-Thermal Heat Pump

Same criteria as ENERGY STAR:

Closed Loop:
EER >= 14.1
COP >= 3.3

Open Loop:
EER >= 16.2
COP >= 3.6

Direct Expansion:
EER >= 15
COP >= 3.5

30% of the cost - NOT subject to $1,500 cap All ENERGY STAR labeled geo-thermal heat pumps qualify for the tax credit.



UseIRS Form 5695

Must be "placed into service" between Jan. 1, 2008 - Dec. 31, 2016.

Water Heaters Gas, Oil, Propane Water Heater Energy Factor >= 0.82 or a thermal efficiency of at least 90%.

30% of cost, up to $1,5002

Note: NOT ALL ENERGY STAR gas storage and gas condensing water heaters will qualify for the tax credit. ALL ENERGY STAR gas tankless models will qualify.

ENERGY STAR criteria:

Gas Storage:
Energy Factor >= 0.62

Gas Tankless:
Energy Factor >= 0.82

Gas Condensing:
Energy Factor >= 0.8

Water Heaters Electric Heat Pump Water Heater Same criteria as ENERGY STAR: Energy Factor >= 2.0 30% of cost, up to $1,5002 All ENERGY STAR qualified electric heat pump water heaters qualify for the tax credit.

Biomass Stove Biomass Stove

Stove which burns biomass fuel5 to heat a home or heat water.

Thermal efficiency rating of at least 75% as measured using a lower heating value.

30% of cost, up to $1,5002  
Solar Energy Systems Solar Water Heating

At least half of the energy generated by the "qualifying property" must come from the sun. Homeowners may only claim spending on the solar water heating system property, not the entire water heating system of the household. The credit is not available for expenses for swimming pools or hot tubs. The water must be used in the dwelling. The system must be certified by the Solar Rating and Certification Corporation (SRCC).

30% of cost, up to $2,000

Use IRS Form 5695 

Must be "placed in service" before December 31, 2016.

Solar Energy Systems Photovoltaic Systems Photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirement. 30% of cost

Use IRS Form 5695 

Must be "placed in service" before December 31, 2016.

Small Wind Energy Systems Residential Small Wind Energy Systems   30% of the cost

Must be "placed in service" by December 31, 2016.

Use IRS Tax Form 5695 (version 2009). This form should be available in late 2009 or early 2010.

Not limited to $1,500 cap.

Fuel Cells Residential Fuel Cell and microturbine system Efficiency of at least 30% and must have a capacity of at least 0.5 kW. 30% of the cost, up to $1,500 per 0.5 kW of power capacity

Must be "placed in service" by December 31, 2016.
Use IRS Tax Form 5695 (version 2009). This form should be available in late 2009 or early 2010.
Not limited to $1,500 cap.

Cars Hybrid gasoline-electric, diesel, battery-electric, alternative fuel, and fuel cell vehicles Based on a formula determined by vehicle weight, technology, and fuel economy compared to base year models

There is a 60,000 vehicle limit per manufacturer before a phase-out period begins. Toyota and Honda have already been phased out. Credit is still available for Ford, GM and Nissan.

For more information visit: Fueleconomy.gov

Use IRS Form 8910 for hybrid vehicles purchased for personal use.
Use IRS Form 3800 for hybrid vehicles purchased for business purposes.

Cars Plug-in hybrid electric vehicles $2,500-$7,500

The first 250,000 vehicles sold get the full tax credit (then it phases out like the hybrid vehicle tax credits).

Effective January 1, 2009.


1 Either the 2001 Supplement of the 2000 International Energy Conservation Code or the 2004 Supplement of the 2003 International Energy Conservation Code.

2 Subject to a $1,500 maximum per homeowner for all improvements combined.

3 A Manufacturer's Certification is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. The IRS encourages manufacturers to provide these Certifications on their website to facilitate identification of qualified products. Taxpayers must keep a copy of the certification statement for their records, but do not have to submit a copy with their tax return.

4 Additional information on exterior window features may be viewed at Anatomy of an Energy Efficient Window.

5 Biomass Fuel means any plant-derived fuel available on a renewable or recurring basis, including agricultural crops and trees, wood and wood waste and residues (including wood pellets), plants (including aquatic plants), grasses, residues, and fibers.

The IRS defines "placed in service" as when the property is ready and available for use.