2009-2010 Energy Tax Credit (ARRA)

The American Recovery and Reinvestment Act of 2009 provides several energy conservation incentives for homeowners. The law extends the consumer tax benefits for another year, through 2010.

• ARRA triples the total available tax credit from $500 to $1,500;
• Increases the tax credit to 30 percent of the cost of each qualified energy efficiency improvement;
• Removes the cap on geothermal heat pumps and solar water heaters through 2016.

For improvements made in 2009 and 2010, you can get an income tax credit of up to $1,500 for installing efficient new windows, insulation, doors, roofs, and heating and cooling equipment. Efficiency criteria varies depending on when these items are placed in service (installed).

The overall $1,500 cap can be reached in several ways with the purchase and installation of energy-efficient products that meet certain efficiency criteria such as:

• Exterior windows, including skylights and storm windows;
• Insulation, exterior doors, or roofs including seals to limit air infiltration, such as caulk, weather stripping, and foam sealants, as well as storm doors;
• Central air conditioner, heat pump, furnace, boiler, water heater, or biomass (e.g. corn) stove. Starting in 2009, geothermal heat pumps were instead eligible for a separate tax credit.

The tax credit incentive is 30 percent of the cost of purchasing and installing a new tankless water heater with an Energy Factor (EF) of at least .82 , or a thermal efficiency of at least 90%, for improvements placed in service through December 31, 2010. The maximum tax credit is $1500.

The tax credit amount is now 30 percent of the cost of the measures, including installation costs for heating and cooling equipment, but only product costs for windows, insulation, and other parts of the building shell. There is a cap on the credit amount of $1,500 for fiscal years 2009 and 2010 combined, thus the credit applies to up to $5,000 in total costs.

There are also tax credits for geothermal heat pumps, solar photovoltaic cells, solar water heaters, fuel cells, and small wind systems. Geothermal heat pumps must meet Energy Star criteria.

The credit cap for small wind energy property (currently $4,000), solar water heating prop-erty, and geothermal heat pumps (currently $2,000) has been removed for qualifying property placed in service after 2008.

To get the tax credit you will need to file IRS Form 5695 with your tax return. You will need to keep receipts proving that you purchased the improvements and a copy of the manufacturer’s certification. For windows and skylights, homeowners may use either ENERGY STAR labels or manufacturer certification statements to document eligibility for the tax credit. Doors are required to have a manufacturer certification statement. Accountants and tax advisors can provide more guidance.

File a claim for refund on Form 1140X for any qualified years that you discover had allowable energy property but the credit was not claimed on the original tax return when filed.

In addition, many ENERGY STAR partners, including local utilities, provide financial incentives for purchasing ENERGY STAR qualified windows, doors, and skylights.  Special offers include sales tax exemptions or credits, and rebates on qualified products. Partners also occasionally sponsor recycling incentives for the proper disposal of old products.

Hybrid and Diesel Vehicle Tax Credit

An income tax credit is available for buying or leasing a new hybrid gas-electric or diesel automobile. The tax credit amount depends on the fuel economy and vehicle weight. Hybrid vehicles must use less gasoline than an average vehicle of similar weight and meet an emissions standard. Few diesel vehicles meet the emissions standard. There is a similar credit for plug-in hybrid or pure electric vehicles, alternative-fuel vehicles and fuel-cell vehicles. If you buy more than one eligible vehicle for any of the above, you can get a tax credit for each vehicle.

For vehicles purchased after 2009, the credit is limited to $7,500 for all vehicles (10% of the cost up to $2,500 plus up to $5,000 based on the battery capacity). The law also adds a credit of up to $4,000 for plug-in conversion kits and 10% of the cost of qualified two- or three-wheeled vehicles purchased after February 17, 2008.

Now is the time to increase energy efficiency of the home, lower taxes and utility bills, and reduce the impact on the environment.