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Home and Vehicle Tax Credits

In February 2009, Congress passed an economic stimulus package  that does much to promote energy efficiency. The American Recovery and Reinvestment Tax Act of 2009 (ARRA) includes several provisions modifying and expanding the scope of the energy efficiency and renewable energy incentives.

ARRA extends, expands, and simplifies the federal income tax credits for homeowners who make energy efficiency home improvements. The law extends the consumer tax benefits for another year, through 2010; triples the total available tax credit from $500 to $1,500; and increases the tax credit to 30 percent of the cost of each qualified energy efficiency improvement. The law also removes the cap on geothermal heat pumps and solar water heaters through 2016.

Consumers who employ energy-efficient products in their homes or drive fuel-efficient vehicles enjoy multiple benefits. At home, these benefits include lower home energy bills, increased indoor comfort, and reduced air pollution. On the road, consumers will increase their gas mileage so they lower their gasoline costs, and they will dramatically reduce the amount of air pollution from their vehicles.

Selected Tax Credits

Purchase Tax savings Notes
Hybrid car or SUV $250 to $3,150 Credit depends on fuel economy and weight.
Home improvements:

  • Central air conditioner, heat pump, furnace or boiler
  • Windows, insulation and sealing
30% of cost up to $1,500 Only some Energy Star products (or levels of insulation) qualify.
Ground-source heat pump 30% of cost Only Energy Star products qualify.

 

Windows, doors, insulation, and roofs must be expected to last at least five years (a two-year warranty is sufficient to demonstrate this).

In some areas of the country, consumers also will be eligible for utility or state rebates or state tax incentives for the same homes, vehicles, and equipment.

Manufacturers can certify (in packaging or on the company’s web site) which of their products qualify for the tax credit. Retailers, contractors, and manufacturers should be able to help you determine what levels of insulation and what other products qualify.

All the improvements must be installed in or on the taxpayer’s principal residence in the United States. Condo and co-op improvements are apportioned to the owners.

There are also tax credits for geothermal heat pumps solar photovoltaic cells, solar water heaters, and fuel cells, also modified starting in 2009.

Geothermal (or ground-source) heat pumps placed in service starting in 2009 are now eligible for a tax credit for 30 percent of the cost, with no maximum. These credits are effective through December 21, 2016. In order to be eligible for the tax credit, geothermal heat pumps must meet Energy Star criteria (specified in Section 6.4 below). In 2006-2007 geothermal heat pumps were eligible for a smaller credit as part of the home improvements credit described above.

Solar hot water heating and photovoltaic power systems placed in service by December 31, 2016 are also eligible for the 30 percent credit, as are small wind systems.

In order to be eligible for the tax credit, heating and cooling equipment must meet specified measures of energy efficiency.

To get the tax credit you will need to file IRS Form 5695 with your taxes. In addition, you will need to keep at least receipts proving that you purchased the improvements and a copy of the manufacturer’s certification. Accountants and tax advisors should also be able to provide more guidance.

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