Taxpayers seeking to reduce their energy bills should not overlook valuable savings from energy tax credits. The IRS recently reminded both individuals and businesses that they can benefit from enhanced and extended energy-saving tax credits in the American Recovery and Reinvestment Tax Act of 2009 (2009 Recovery Act).

The IRS is encouraging individuals and businesses to examine if they are eligible for energy tax savings benefits. Many of these tax incentives are temporary. Individuals and businesses have only a limited window of time in which to take advantage of them.

Home energy efficiency improvements

For homeowners, tax credits are available for making energy-efficient improvements or installing alternative energy equipment. One credit rewards taxpayers for energy efficient improvements, such as insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems. There is a uniform credit of 30 percent of the cost of such qualifying improvements up to $1,500. The 2009 Recovery Act raises the limit on the amount that can be claimed for improvements placed in service in 2009 and 2010 to $1,500, instead of the $500 lifetime limit under prior law. However, some of the requirements for qualifying improvements have become stricter.

Individuals who purchase solar hot water property, geothermal heat pumps and wind energy property may also be eligible for a tax credit. The 2009 Recovery Act removes the individual dollar caps for such property, but does place a $500 credit cap on qualified fuel cell property expenses.

Keep in mind that not all ENERGY STAR windows, doors and other materials qualify for a federal tax break. If you have any questions about the energy-efficient property you are installing in your home, please contact our office.

Vehicle credits

The Tax Code includes a variety of credits to encourage purchases of environmentally-friendly vehicles. Most taxpayers are already familiar with the alternative motor vehicle credit for hybrid vehicles. The 2009 Recovery Act also enhanced credits for plug-in electric vehicles, in anticipation of these vehicles being on the market in the near future.

Business taxpayers

The Tax Code also separately encourages businesses to “go green.” The renewable energy production tax credit provides a credit for electricity produced from renewable sources, such as wind. The energy investment credit has been expanded to include qualified small wind energy property; moreover there is no longer a credit cap for qualified small wind energy property.  In some cases, producers of alternative energy may also qualify for government grants.

If you would like more information on these tax breaks and what improvements may qualify for an energy tax incentive, please call our office.