Energy Credits for Individuals

By Jeff Boxx 

The American Recovery and Reinvestment Act of 2009 (ARRA) included several provisions to help simulate the economy. One of these provisions changed the tax credits allowed for energy efficient changes to your home. These Tax credits have been around for awhile, but this new law has extended the benefits offered for energy efficient improvements.

Before getting into these changes, remember that qualified improvements must meet minimum efficiency standards in order to qualify for the tax credit. Not every energy efficient product counts. Manufactures will provide a detailed certification statement stating which of their products qualify. This certification is the key to unlocking your tax credit.

After June 1, 2009 the IRS has changed these minimum efficiency requirements and the manufactures will not be allowed to provide certifications for property that fails to meet the new standards. Be aware of products that might be energy efficient, but do not have a current certification. Manufactures are currently in the process of updating their product labels to help consumers determine which ones qualify for the tax credit. Not all products with an “Energy Star” label will automatically qualify; you will need to look for products that clearly state “Eligible for federal tax credit of up to $1,500” and are certified by the manufacturer.

At the time of purchase, it is important to save this certificate from the manufacture because you will need this support documentation in the event of an IRS audit.

Now, let’s look at some of the new changes affecting individuals:

Residential Energy Property Credit (Section 1121)

The tax credit is now 30 percent of the cost of all qualifying improvements with a maximum credit of $1,500 for improvements placed in service in 2009 and 2010.

Note that the total amount of the credit for 2009 and 2010 is $1,500. For example, if in 2009 you installed $5,000 of new energy efficient windows and in 2010 you added another $5,000 of energy efficient doors your credit was maxed out with the window upgrade in 2009. You would not receive another $1,500 credit for the doors in 2010.

Qualifying property includes insulation, exterior windows, exterior doors and heating and air conditioning systems for your primary residence. The primary residence requirement has to be met at the time of installation, so the credit only applies to existing homes.

Residential Energy Efficient Property Credit (Section 1122)

This credit is for qualified residential alternative energy equipment. This includes solar equipment, solar hot water heaters, geothermal heat pumps ( pumps heat to and from the ground to heat and cool your home) and wind turbines. Solar water heaters for pool or spa equipment are excluded from this credit.

For 2008, the credit is equal to 30 percent of qualifying expenditures with a maximum credit of $2,000 on qualified solar water heating property. There is no cap on qualified solar electric property.

For 2009, the $2,000 limit on qualified solar water heating property is removed. The heated water still has to be used in your house; pool and spa heaters are still excluded.

Additional credit limits are in place for qualified fuel cell property.

Other Credits

The American Recovery and Reinvestment Act of 2009 (ARPA) also included tax incentives relating to Plug-In Electric Vehicles. The key requirement for qualified vehicles is they “plug in” to recharge.

If you have any questions about energy efficient tax credits ask your CPA or feel free to give us a call.

10-29-09