IRS Reminds Taxpayers of Energy Conservation Tax Savings
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By Robert Steere, Toolkit Staff Writer The IRS, in commemoration of Earth Day 2009, released new guidance regarding energy-saving credits available to individuals and businesses. Taxpayers are being reminded of the tax benefits enacted or enhanced in the American Recovery and Reinvestment Tax Act of 2009. The benefits can now be claimed by those who purchase certain products that reduce energy use or produce renewable energy. Taxpayers are encouraged by the IRS to review the new changes in the law to see if they can now qualify to claim any of these energy-saving credits. "These new, expanded credits encourage homeowners to make improvements that will make their homes more energy efficient," said IRS Commissioner Doug Shulman. "People can improve their homes and save money over the long run." The fact sheet issued by the IRS summarizes the new provisions of the tax code that provide new, extended, or increased incentives for taxpayers' efforts to improve energy efficiency. The most in-depth discussion focuses on the residential energy property credit available for energy-saving improvements you make to your home. Residential Energy Property Credit The residential energy property credit was previously available to homeowners in 2007, but was repealed in 2008 before being reinstated in its current form. For 2009, the amount of the credit is increased, but some of the criteria for qualifying improvements are more stringent. This tax credit is available for costs of qualifying home improvements, including installation of insulation, energy-efficient exterior windows, and energy-efficient heating and air conditioning systems. The new law provides for a maximum lifetime credit of $1,500, increased from $500 under the old law. The new credit is now an amount equal to 30 percent of the cost of the qualifying home improvements. The credit under the 2007 law used to be based on only 10 percent of the cost of some qualifying property and on 100% of the cost (up to very limited amounts) of other qualifying property. In addition, the new law increases the energy efficiency standards for building insulation, exterior windows, doors, and skylights, certain central air conditioners, and natural gas, propane or oil water heaters placed in service after Feb. 17, 2009. Homeowners seeking to claim these credits may currently rely on existing manufacturer certifications or Energy Star labels in determining which products qualify for the credit. Within the next several months, updated certification guidelines will be announced. Residential Energy-Efficient Property Credit The IRS also provided interim guidance relating to the tax credit for residential energy-efficient property placed in service for tax years beginning after December 31, 2008, and before January 1, 2017. This tax credit applies to expenditures for qualified solar electric property, qualified solar water-heating property, qualified fuel cell property, qualified small wind energy property, and qualified geothermal heat pump property for use in residential properties. The law, as recently amended, provides a credit in an amount equal to 30 percent of a taxpayer's qualifying expenditures. It also clarifies that qualifying expenditures include labor costs for site preparation, assembly, original installation and piping or wiring to connect the property to the dwelling. The new law also eliminates the caps in the old law on the maximum credits allowable for each of the different types of qualifying property. Only a cap on qualified fuel cell property remains, which limits the credit on fuel cell property to $500 per half kilowatt hour of capacity. Manufacturers may certify to purchasers that their qualifying products meet the requirements necessary for claiming the credit. A certification statement may be packaged with the products, provided in a printable form on the manufacturer's website or in any other manner that permits the taxpayer to retain the certification statement for recordkeeping purposes. Certification statements must contain the name and address of the manufacturer, identification of the product as qualifying property, and appropriate identifiers of the product. Additionally, a certification statement must contain a declaration, signed by an individual currently authorized to bind the manufacturer. Funding Options for Renewable Energy Power Sources The IRS wants business taxpayers to know that those who place in service facilities that produce electricity from wind or other renewable resources can choose one of three options to help fund their projects: a tax credit based on the amount invested (the energy investment tax credit), a tax credit based on the energy produced (the renewable energy production tax credit), or a grant (the renewable energy grant). The grant option, and the flexibility to choose among these options, is a new feature in the law. A taxpayer may opt to claim the energy investment tax credit, which generally provides a tax credit equal to 30 percent of the taxpayer's investment in qualifying energy projects, or may opt for the production tax credit, which can provide a credit of up to 2.1 cents per kilowatt-hour for electricity produced from renewable sources. Taxpayers making qualified investments that are placed in service after 2008 and before 2014 (or 2013 for wind facilities) can make an irrevocable election to claim the energy investment tax credit instead of the renewable electricity production tax credit. IRS will issue guidance explaining how to make the election. Taxpayers also can opt to claim a grant once the property is placed in service instead of claiming either of the tax credits. For qualified renewable energy facilities, the grant is 30 percent of the investment in the facility as long as construction begins in 2009 or 2010 and the property is placed in service before 2014 (2013 for wind facilities). The Treasury Department will issue guidance explaining how the grant works and how to apply. Taxpayers electing to receive the grant will not be eligible for either of the tax credits. Proceeds from the grants are not includible in the taxpayer's gross income, but the grant amount is subject to recapture if the property is disposed of or otherwise ceases to qualify. Additional Tax Credits for Energy-Saving Autos The IRS also noted in its fact sheet several tax breaks related to purchases of energy-efficient vehicles for business or personal use, including several credits comprising the alternative motor vehicle credit. Included in this credit are the tax credits for fuel cell vehicles, advanced lean-burn technology vehicles, hybrids and alternative fuel vehicles. Also mentioned were new credits for plug-in electric technology. Each of these credits can provide substantial tax benefit to individuals or businesses purchasing qualifying vehicles.
Posted May 4, 2009. |
