Federal energy tax credit

Energy Tax Credit - get 30% back on solar purchase

What's the difference between a tax credit and a tax deduction?

A tax credit is a tax benefit offered by either the IRS or a state/local government for spending money on projects such as a solar energy installation at ones home or business.

The benefit comes in the form of a direct reduction in the amount of incometaxes you might owe or by an increase in the amount of refund you get. For example, if you owed $5,000 in Federal incometaxes and received a $1,000 tax credit, you would now only owe $4,000. You don’t receive an incometax credit when you buy the product, like an instant rebate. You claim the tax credit on your federal incometax form at the end of the year. 

This is very different from a tax deduction, which does not directly reduce the amount you owe. A tax deduction reduces the amount your tax is calculated on. Receiving a $1,500 tax deduction might only reduce what you owe by a few hundred dollars.

Energy tax credits for home improvements

1) Solar hot water heating and solar panel systems placed in service by December 31, 2016 are eligible for the 30% tax credit, with no upper limit, (for existing homes and new construction), as are small wind systems. In order to qualify for the tax credit, solar water heaters must meet Energy Star requirements. More information on renewable tax credits is available from the Energy Star website.

2) Geothermal (or ground-source) heat pumps placed in service starting in 2009 are now eligible for a tax credit for 30% of the cost, with no maximum (for existing homes and new construction.) 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.

3) Though available, residential fuel cell and micoturbine systems are rare in application. Some systems may be eligible for a 30% tax credit, with no upper limit through 2016 (for existing homes and new construction), subject to certain criteria.

4) The $2,000 cap that had applied to geothermal heat pumps has been removed, leaving in place the 30% tax credit on qualified solar energy systems, geothermal heat pumps, small wind turbines, and fuel cell systems. Install all four and you qualify for an $8,000 tax credit.

5) Biomass stoves are eligible for a tax credit of 30% of the cost, up to $1,500. The stove must burn biomass fuel to heat a home or heat water. It must have a thermal efficiency rating of at least 75% as measured using a lower heating value.

For more detailed energy tax credit information check the Department of Energy.

Federal energy tax credits for automobiles

1.) Hybrid Gas-Electric and Alternative Fuel Vehicles - Energy tax credit

Individuals and businesses who buy or lease a new hybrid gas-electric car or truck are eligible for an incometax credit for vehicles “placed in service” starting January 1, 2006, and purchased on or before December 31, 2010. The amount of the credit depends on the fuel economy, the weight of the vehicle, and whether the energy tax credit has been or is being phased out. Hybrid vehicles that use less gasoline than the average vehicle of similar weight and that meet an emissions standard qualify for the credit.

This tax credit will be phased out for each manufacturer once that company has sold 60,000 eligible vehicles. At that point, the tax credit for each company’s vehicles will be gradually reduced over the course fifteen months. See the IRS's Summary of the Credit for Qualified Hybrid Vehicles for information on the status of specific vehicle eligibility.

Alternative-fuel vehicles, diesel vehicles with advanced lean-burn technologies, and fuel-cell vehicles are also eligible for tax credits. See the IRS summary of credits available for Alternative Motor Vehicles.

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2) Plug-In Electric Vehicles - Energy tax credit

Plug-in electric vehicles also qualify for a tax credit starting January 1, 2010. The credit for passenger vehicles and light trucks ranges from $2,500 to $7,500, depending on batter capacity. The first 200,000 vehicles sold by each manufacturer are eligible for the full tax credit; the credit will then phase out over a year.

3) Plug-In Hybrid Conversion Kits - Energy tax credit

Hybrid vehicle owners who purchase a qualified plug-in hybrid conversion kit are eligible for a 10% credit, capped at $4,000, through 2011.

What state energy tax credits are available?

The Federal Economic Stimulus Bill (signed in February, 2009) authorized an $800 million government bond program that encourages states to create incentives for new and existing energy conservation and related programs. Look for up to $6,500 per qualifying home in the Weatherization Assistance Program. The Department of Energy’s Office of Renewable Energy and Energy Efficiency had its budget increased nearly ten fold. This department provides grants to state and local governments that trickle down to individuals.

Energy tax credit checklist

Tips on qualifying for energy tax credits:

1. Energy tax credits must be for the taxpayer’s principal residence.
2. You must have a Manufacturer’s Certification Statement to qualify. This is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. Keep a copy of the certification with your records, but do not submit a copy with your return.
3. For record keeping, save all your receipts.
4. Claim your energy tax credit for the year in which it was made (filed by April 15th of the following year) -- use IRS Tax Form 5695 (2009 version) -- it will be available late 2009 or early 2010.
5. If you are building a new home, you can qualify for the tax credit for geothermal heat pumps, photovoltaics, solar water heaters, small wind systems and fuel cells. 
6. These items are not subject to a cap, and are in effect through 2016.

What energy tax credits are available for business owners?

Here is a listing from DSIRE on:

Business Energy Investment Tax Credit (ITC)

Last DSIRE Review: 02/18/2009
Incentive Type: Corporate Tax Credit
Eligible Renewable/Other Technologies: Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics, Wind, Biomass, Geothermal Electric, Fuel Cells, Geothermal Heat Pumps, CHP/Cogeneration, Solar Hybrid Lighting, Direct Use Geothermal, Microturbines
Applicable Sectors: Commercial, Industrial, Utility
Amount: 30% for solar, fuel cells and small wind; 10% for geothermal, microturbines and CHP
Maximum Incentive: Fuel cells: $1,500 per 0.5 kW
Microturbines: $200 per kW
Small wind turbines placed in service 10/4/08 - 12/31/08: $4,000
Small wind turbines placed in service after 12/31/08: no limit
All other eligible technologies: no limit
Eligible System Size: Small wind turbines: 100 kW or less
Fuel cells: 0.5 kW or greater
Microturbines: 2 MW or less
CHP: 50 MW or less
Equipment/Installation Requirements: Fuel cells, microturbines and CHP systems must meet specific energy-efficiency criteria
Authority 1: 26 USC § 48
Authority 2: H.R. 1424: Div. B (The Energy Improvement and Extension Act of 2008)
Date Enacted: 10/3/2008
Effective Date: 10/3/2008
Authority 3: H.R. 1: Div. B, Sec. 1103 (The American Recovery and Reinvestment Act of 2009)
Date Enacted: 2/17/2009
Effective Date: 1/1/2009

Tags: solar energy tax credits, solar energy residential tax credits, federal solar tax credit, solar tax credit(s), solar tax incentives, solar energy tax breaks