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Audio File for Podcast: Energy Tax Credits
The American Recovery and Reinvestment Act (ARRA) provides numerous
tax incentives for individuals to invest in energy-efficient products.
Residential Energy Property Credit (Section 1121):
The new law increases the energy tax credit for homeowners who make
energy efficient improvements to their existing homes. The new law
increases the credit rate to 30 percent of the cost of all qualifying
improvements and raises the maximum credit limit to $1,500 for
improvements placed in service in 2009 and 2010.
The credit applies to improvements such as adding insulation, energy
efficient exterior windows and energy-efficient heating and air
conditioning systems.
A similar credit was available for 2007, but was not available in
2008. Homeowners should be aware that the standards in the new law are
higher than the standards for the credit that was available in 2007 for
products that qualify as “energy efficient” for purposes of this tax
credit. The IRS has issued Notice 2009-53 that will allow manufacturers to certify that their products meet these new standards.
Until the guidance is released, homeowners generally may continue to
rely on manufacturers’ certifications that were provided under the old
guidance. For exterior windows and skylights, homeowners may continue
to rely on Energy Star labels in determining whether property purchased
before June 1, 2009, qualifies for the credit. Manufacturers should not
continue to provide certifications for property that fails to meet the
new standards.
Residential Energy Efficient Property Credit (Section 1122):
This nonrefundable energy tax credit will help individual taxpayers pay
for qualified residential alternative energy equipment, such as solar
hot water heaters, geothermal heat pumps and wind turbines. The new law
removes some of the previously imposed maximum amounts and allows for a
credit equal to 30 percent of the cost of qualified property. See Notice 2009-41.
Plug-in Electric Drive Vehicle Credit (Section 1141):
The new law modifies the credit for qualified plug-in electric drive
vehicles purchased after Dec. 31, 2009. To qualify, vehicles must be
newly purchased, have four or more wheels, have a gross vehicle weight
rating of less than 14,000 pounds, and draw propulsion using a battery
with at least four kilowatt hours that can be recharged from an
external source of electricity. The minimum amount of the credit for
qualified plug-in electric drive vehicles is $2,500 and the credit tops
out at $7,500, depending on the battery capacity. The full amount of
the credit will be reduced with respect to a manufacturer's vehicles
after the manufacturer has sold at least 200,000 vehicles.
Plug-In Electric Vehicle Credit (Section 1142): The
new law also creates a special tax credit for two types of plug-in
vehicles — certain low-speed electric vehicles and two- or
three-wheeled vehicles. The amount of the credit is 10 percent of the
cost of the vehicle, up to a maximum credit of $2,500 for purchases
made after Feb. 17, 2009, and before Jan. 1, 2012. To qualify, a
vehicle must be either a low speed vehicle propelled by an electric
motor that draws electricity from a battery with a capacity of 4
kilowatt hours or more or be a two- or three-wheeled vehicle propelled
by an electric motor that draws electricity from a battery with the
capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if
the plug-in electric drive vehicle credit is allowable. For more
information see: IR-2009-44, Notice 2009-54 and Notice 2009-58..
Conversion Kits (Section 1143): The new law also
provided a tax credit for plug-in electric drive conversion kits. The
credit is equal to 10 percent of the cost of converting a vehicle to a
qualified plug-in electric drive motor vehicle and placed in service
after Feb. 17, 2009. The maximum amount of the credit is $4,000. The
credit does not apply to conversions made after Dec. 31, 2011. A
taxpayer may claim this credit even if the taxpayer claimed a hybrid
vehicle credit for the same vehicle in an earlier year.
Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT (Section 1144):
Starting in 2009, the new law allows the Alternative Motor Vehicle
Credit, including the tax credit for purchasing hybrid vehicles, to be
applied against the Alternative Minimum Tax. Prior to the new law, the
Alternative Motor Vehicle Credit could not be used to offset the AMT.
This means the credit could not be taken if a taxpayer owed AMT or was
reduced for some taxpayers who did not owe AMT.
Questions and Answers
If you have questions about the energy incentives for individuals, these questions and answers might help.
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