Energy tax incentives Over the last few years, Congress has created a variety of tax incentives for individuals and businesses that invest in energy-efficient appliances, cars, equipment and buildings. This year’s stimulus bill — the American Recovery and Reinvestment Act of 2009 (ARRA) — expands many of these incentives and makes them even more valuable. But most of the energy tax breaks are temporary. So if you want to take advantage of them, begin planning now. Incentives for individuals ARRA expands energy tax credits for individuals and also relaxes limits on the amount of credit you can claim related to: Home improvement. Under previous law, individuals could claim a personal income tax credit for energy-efficient property they installed in their principal residences through 2009. The amount of the credit was 10% of the cost of qualifying “building envelope” components — such as insulation, exterior windows (including doors and skylights) and certain roofs — plus a fixed dollar allowance for “qualified energy property,” including certain circulating fans, boilers, furnaces, heat pumps and central air conditioners. The law set limits for certain subcategories of expenditures and also placed a $500 lifetime cap on the credit. It also provided that no more than $200 of the lifetime cap could be attributable to windows. ARRA extends the credit through 2010. It also increases the amount of the credit to 30% of costs, eliminates caps on subcategories and increases the overall cap to $1,500 in expenditures during 2009 and 2010. Alternative energy. ARRA gives a big boost to the existing tax credit for individuals who install alternative-energy equipment in their homes. The credit is equal to 30% of the cost (including labor) of qualifying solar energy equipment, geothermal heat pumps and fuel cell plants and is available through 2013; it also applies to residential wind energy equipment through 2012. Previously, the credit for solar and geothermal equipment was capped at $2,000, the credit for wind equipment was capped at $500 for each ½ kilowatt of capacity (up to $4,000), and the credit for fuel cell property was capped at $500 per ½ kilowatt of capacity. Note that, in lieu of the tax credit, ARRA provides for a similar rebate, available through 2016, on the cost of certain renewable energy property. Further, for some such property, ARRA eliminates the caps on which the credit or rebate may be calculated. This change is significant. A homeowner who invests $20,000 in a qualifying rooftop solar power system, for example, is now entitled to a $6,000 federal tax credit instead of $2,000 under previous rules. However, these tax incentives are subject to a number of strict requirements. (See “Read the fine print”.) Before you invest in energy-saving equipment or materials for your home, consult with your tax advisor if you want to be sure you’ll qualify for tax credits. Incentives for businesses Many of ARRA’s energy tax incentives for businesses are directed at energy producers. For example, the act:
The act also includes several other tax and nontax provisions designed to encourage the development and production of alternative-energy sources. Commercial building deduction Last year’s Emergency Economic Stabilization Act extended the tax deduction for investments in energy-efficient commercial buildings through 2013. The deduction allows owners to write off the cost of qualifying depreciable property installed as part of the interior lighting, heating, cooling, ventilation or hot water systems, or as part of the building envelope. The deduction is generally limited to $1.80 per square foot. Also, to qualify, the improvements must meet a 50% energy-reduction standard. Certain improvements that fail to meet this standard may be eligible for a partial deduction. Alternative-vehicle incentives Individuals and businesses may benefit from various tax credits for alternative-fuel vehicles, such as hybrids, fuel-cell vehicles and advanced lean-burn vehicles. ARRA also provides a credit for certain plug-in electric vehicles. The amount and availability of these credits depend on several factors, including vehicle type, cost, weight and fuel economy. Individuals and businesses may also be eligible for tax credits for installing alternativefuel storage, dispensing and recharging equipment. Think long term Cost, of course, is always an issue in today’s struggling economy. But individuals and businesses that invest in energy efficiency find that this strategy can pay off in the long term by reducing energy costs up to 30% — and, in some cases, even more. • |