Energy
Incentives for Individuals in the American Recovery and Reinvestment
Act
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
2009-59 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 09-41.
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.
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.
