It ain't easy bein' green . . .

Clients often ask if they should make a repair or spend money on a major improvement just for the tax credits involved. Buying just to get the tax credit itself is not necessarily a savings in itself.  Often times, the tax credit is only allowed for those products with the highest efficiencies (and thus a higher retail price). 

 

From adding extra insulation, to installing new windows, to harnessing the power of wind, the activities that conserve energy or produce it from clean and renewable sources enjoy new or expanded tax credits in the American Recovery and Reinvestment Act of 2009 (ARRA). Here are some of the ARRA’s more notable provisions, most of which are targeted towards individuals.

 

Energy Property Credit

 

For 2009 and 2010, the act extends and increases the credit for qualified energy efficient equipment or building components installed in the taxpayer’s principal residence. The overall credit is tripled from 10% to 30% of qualifying expenditures, subject to a lifetime cap of $1,500 (formerly $500). Caps on certain heating and cooling equipment placed in service during the year are lifted, as is the lifetime cap on energy efficient windows (formerly $200). Such energy efficient products include insulation, windows and doors, roofing, HVAC, biomass stove, water heaters, geo-thermal heat pumps, solar energy systems, small wind and certain fuel cells. Some of the products mentioned have certain standards and qualifications that must be reached in order to qualify for the credit. Expenditures formerly ineligible for the credit because they were funded by subsidized energy financing are now eligible.

 

Credits for Plug-in Electric Vehicles

 

The act introduces two new credits for electric vehicles and modifies, starting next year, the credit for plug-in electric cars. The credit is changed to between $2,500 and $7,500, depending on the vehicle’s kilowatt-hour rating, for vehicles purchased after December 31, 2009. (Plug-ins aren’t expected to be generally available in the US before then.)

The AARA also refines the definition of a qualifying plug-in vehicle: one with at least four wheels that is designed primarily for use on public streets and highways and is powered “to a significant extent” by an electric motor with a rechargeable battery of at least four kilowatt-hours’ capacity. A phaseout threshold based on the number of vehicles sold for use in the U.S. is lowered from 250,000 vehicles to 200,000, but the credit is made permanent in place of a prior-law sunset at the end of 2014.

The ARRA also introduced a credit of 10% up to a maximum of $2,500 of the cost of low-speed and two- and three-wheeled plug-in electric vehicles and another 10% credit, up to a maximum of $4,000, for costs of converting a non plug-in hybrid or conventional-fuel vehicle into a plug-in electric one.  These two credits are available for vehicles bought or converted between February 17, 2009 and December 11, 2011.

 

Renewable Energy Production Credit

 

Previously authorized for wind facilities placed in service before 2010 and for other sources before 2011, the renewable energy production credit is extended three more years (two years for marine and hydrokinetic sources).

 

Other New, Expanded or Extended Credits

 

The ARRA repeals the $4,000 cap on the 30% general business credit as it pertains to “small wind energy property”, increases the alternative fuel vehicle refueling property credit, and repeals the basis reduction rule for the general business credit as applied to certain alternative energy property financed b subsidized energy financing or private activity bonds.

 

For additional information, please talk with Brent McClure at Kiesling Associates.