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How Energy Efficient Purchases May Result in Considerable Tax Savings
By purchasing certain energy efficient products or renewable energy systems for your home, not only will you conserve energy and lower your monthly energy bill, you may be eligible for a federal tax credit. The American Recovery and Reinvestment Act of 2009 extended and expanded energy credits available to individuals. The following information outlines personal tax credits that are available and the type of expenditures which may qualify.
Non-Business Energy Property Credit
The Non-Business Energy Property Credit is a nonrefundable personal tax credit and is available for qualified purchases in 2009 and 2010. The credit is limited to certain improvements made to your main home, the home where you live most of the time. Purchases relating to new construction and rental property do not qualify under this provision. The credit is equal to 30% of the cost for both qualified energy efficient improvements and residential energy property purchases paid or incurred by you during the tax year. The credit is limited to a maximum of $1,500 in the aggregate. If the credit cannot be utilized it will not carryover to the following year.
Qualified energy efficient improvements include the following: (1) insulation designed to reduce heat loss or gain, (2) energy efficient exterior windows and doors, including certain storm windows, doors and skylights and (3) certain metal and asphalt roofs that reflect more of the sun’s rays to reduce the heat transferred into your home. The tax credit does not include the installation cost of the above components, only the cost of the components themselves.
Residential energy property expenditures may include the following: (1) biomass stoves, (2) advanced main air circulating fans, (3) air source heat pumps, (4) central air conditioning, (5) gas, propane, or oil hot water boilers, (6) natural gas or propane furnaces, (7) oil furnaces, (8) gas, oil, or propane water heaters, and (9) electric heat pump water heaters. The cost of installation is included in the tax credit for these purchases.
Residential Energy Efficient Property (REEP) Tax Credit
The REEP credit is a nonrefundable personal tax credit for 30% of the cost of the following eligible property: (1) solar water heaters, (2) solar electric property, (3) fuel cell property, (4) small wind energy property, and (5) geothermal heat pump property. The credit is limited to purchases for your home, including second homes, for both existing homes and new construction. Rentals do not qualify. The credit is available through December 31, 2016.
The REEP credit limits were eliminated by the 2009 Recovery Act for qualified solar water heating, geothermal heat pump, and small wind energy property. The excess can be carried forward to the succeeding tax year. However, the credit for any tax year on qualified fuel cell property cannot exceed $500 with respect to each half kilowatt of capacity and it must be for your main home only. Additionally, no credit will be allowed for qualified solar water heating property unless it is certified for performance by an authoritative agency.
Qualified Products
ENERGY STAR distinguishes energy efficient products, but please note, not all ENERGY STAR qualified products qualify for a tax credit. It is the manufacturer’s responsibility to apply to the IRS for the proper certification to ensure their products will qualify for the tax credit. You are required to retain the Manufacturer’s Certification Statement as part of your tax records. The manufacturer will provide you the certification statement by including a written copy of the statement with packaging of the product or in printable form on the manufacturer’s website. You do not have to submit the certification statement with your tax return.
Energy Related Credits for Plug-In Vehicles
The Plug-in Electric Drive Vehicle Credit has been modified for vehicles purchased after December 31, 2009. To qualify, the vehicle must be treated as a motor vehicle for purposes of Title II of the Clean Air Act, which has the effect of excluding low-speed motor vehicles. The vehicle must be newly purchased (not used), have four or more wheels, have a GVWR of less than 14,000 pounds, and draw propulsion using a battery with at least 4 kilowatt hours that can be recharged from an external source of electricity. The minimum credit is $2,500 and caps out at $7,500 depending on the battery capacity.
Additionally, a separate Plug-In Electric Vehicle Credit creates a nonrefundable personal tax credit for certain low-speed electric vehicles and two or three wheeled vehicles. The credit is 10% of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after February 17, 2009 and before January 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. You may not claim this credit if the plug-in electric drive credit is allowed for the vehicle.
These credits were created for Neighborhood Electric Vehicles; vehicles that are manufactured primarily for use on public streets, roads and highways. The IRS specifically states that a low speed vehicle is not one that is manufactured primarily for off-road use, such as for use on a golf course. There have been instances where the IRS has ruled that a golf cart is street legal and qualifies for the electric car credit, however, BE CAUTIOUS. Circumstances of use may also play an important factor in determining qualification for the credit. If you are considering a golf cart purchase, you should consult with your tax advisor, and ask to see an IRS acknowledgment letter from the manufacturer that approves the particular model for the credit before you buy.
Energy conservation is not the only plus to going green! Be sure to take advantage of the possible tax savings with your energy efficient purchases. We at Hughes, Snell & Co., P.A. are happy to assist you with any questions regarding the complexities of energy efficient credits and determining how you qualify. Please contact Laura Frost, CPA at lfrost@hughessnell.com for more information.
To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used for the purpose of avoiding penalties assessed under the Internal Revenue Code.
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