Tax Credits for Energy Efficiency

The recently enacted "American Recovery and Reinvestment Act of 2009" (Stimulus act) includes a package of tax incentives to encourage investments in renewable energy projects and technologies. In trying to sort out what this means for builders and consumers, we have found the EPA Energy Star website has a great overview of "Federal Tax Credits for Energy Efficiency":

http://www.energystar.gov/index.cfm?c=products.pr_tax_credits

The Tax Incentives Assistance Project (TIAP) website also provides guidance on federal income tax incentives, starting with the Energy Policy Act of 2005 and subsequent amendments, and includes updated information from the Stimulus Act:

http://www.energytaxincentives.org/

Peter Callnan, from CPA firm Honeck O'Toole has supplied us with an overview of some of these credits, for consumers and businesses:

Business energy credit. The new law enhances the business energy credit by eliminating the cap on small wind property and repealing the basis reduction requirement for subsidized energy financing.

Energy-efficient existing homes. The new law extends the tax credit for improvements to energy-efficient existing homes through 2010. For 2009 and 2010, the amount of the tax credit is increased from 10% to 30% of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements during the tax year. The property-by-property dollar caps on the tax credit are also eliminated, and an aggregate $1,500 cap applies to all property qualifying for the credit.

Residential energy property. The new law removes the dollar limitations on certain energy credits, e.g, for qualified small wind energy property ($4,000 cap); for qualified solar water heating property ($2,000 cap); and qualified geothermal heat pumps ($2,000).

Grants in lieu of electricity production credit and energy credit. Under current law, taxpayers are allowed to claim a production tax credit for electricity produced by certain renewable energy facilities and an investment tax credit for certain renewable energy property. These tax credits help attract private capital to invest in renewable energy projects. Current economic conditions have severely undermined the effectiveness of these tax credits. As a result, the new law allows taxpayers to receive a grant from the Treasury Department in lieu of tax credits. Most facilities are eligible for a 30% grant, but some (geothermal, qualified microturbine, combined heat and power, and geothermal heat pump) qualify only for a smaller, 10% grant. To earn a grant, the facility must be placed in service in 2009 or 2010, or construction must begin in either of those years and must be completed prior to the termination of the credit.

Finally, John Logan, B.Sc., Ph.D. of Water Energy Distributors, Inc. has also shared this link, which specifically addresses the tax credit for homeowners who install geothermal heat pump systems in 2009 or later:

http://www.geoexchange.org/component/content/article/90-stimulus-bill-increases-homeowner-tax-credit.html

This information has been helpful to us in sorting through the new tax credits but please check with your accountant for more detailed information.