On October 3, 2008, President Bush signed into law the “Emergency Economic Stabilization Act of 2008.” This bill extended tax credits for energy efficient home improvements (windows, doors, roofs, insulation, HVAC, and non-solar water heaters). Tax credits for these residential products, which had expired at the end of 2007, will now be available for improvements made during 2009. However, improvements made during 2008 are not eligible for a tax credit.
The bill also extended tax credits for solar energy systems and fuel cells to 2016. New tax credits were established for small wind energy systems and plug-in hybrid electric vehicles. Tax credits for builders of new energy efficient homes and tax deductions for owners and designers of energy efficient commercial buildings were also extended.
Federal Tax Credits for Energy Efficiency includes:
- Tax Credits for Consumers
- Tax Credits for Home Builders
- Tax Deductions for Commercial Buildings
- For More Information
**Please note, not all ENERGY STAR qualified homes and products qualify for a tax credit. These tax credits are available for a number of products at the highest efficiency levels, which typically cost much more than standard products. If, for whatever reason, you decide not to purchase a product covered by the tax credit, you may still consider purchasing an ENERGY STAR product. ENERGY STAR distinguishes energy efficient products which, although they may cost more to purchase than standard models, will pay you back in lower energy bills within a reasonable amount of time, without a tax credit.
Tax Credits for Consumers:
Home improvement tax credits are available for home improvements “placed in service” from January 1, 2009 through December 31, 2009. Any qualified home improvements made in 2008 are not eligible for the tax credit.
Home improvement tax credits are available for insulation, replacement windows, non-solar water heaters, and certain high efficiency heating and cooling equipment. See chart. The maximum amount that a taxplayer may claim from all of these tax credits combined is $500 over the lifetime of the tax credit (2006, 2007 & 2009).
If you are building a new home, you do not qualify for the tax credits for “eligible building envelope components” (windows, doors, insulation, roofs) or “qualified energy property” (HVAC & non-solar water heaters). However, the tax credit for photovoltaics, solar water heaters, small wind systems and fuel cells is available for homeowners building new homes.
The Internal Revenue Service (IRS) guidance for consumers: IRS Notice 2006-26.
Starting January 1, 2009, there is a new tax credit for Plug-in hybrid electric vehicles, starting at $2,500 and capped at $7,500 for cars and trucks (the credit is based on the capacity of the battery system). The first 250,000 vehicles sold get the full tax credit (then it phases out like the hybrid vehicle tax credits).
Tax credits are available to buyers of hybrid gasoline-electric, diesel, battery-electric, alternative fuel, and fuel cell vehicles. The tax credit amount is based on a formula determined by vehicle weight, technology, and fuel economy compared to base year models. These credits are available for vehicles placed in service starting January 1, 2006. For hybrid and diesel vehicles made by each manufacturer, the credit will be phased out over 15 months starting after that manufacturer has sold 60,000 eligible vehicles. For vehicles made by manufacturers that have not reached the end of the phase-out, the credits will end for vehicles placed in service after December 31, 2010. See the IRS Website for updated information.
Solar Energy Systems
Tax credits are available for qualified solar water heating and photovoltaic systems. The credits are available for systems “placed in service” from January 1, 2006 through December 31, 2016. The tax credit is for 30% of the cost of the system, up to $2,000. After December 31, 2008, this $2,000 cap will be removed for photovoltaic systems (but not solar water heaters). This credit is completely separate from the $500 home improvement credit.
Small Wind Energy Systems
Tax credits are available to homeowners who install residential small wind turbine systems. The credits are available for systems placed in service from January 1, 2008 to December 31, 2016. The tax credit is for 30% of the cost of the system, up to $500 for each half kilowatt of capacity with an overall maximum of $4,000.
There is a consumer tax credit of up to 30% of the cost (up to $1,500 per 0.5 kW of capacity maximum) for installing a “qualified” fuel cell and microturbine systems. The credits are available for systems “placed in service” from January 1, 2006 through December 31, 2016. This credit is not limited to the $500 home improvement cap.
For a detailed summary of the tax credits available to homeowners, please visit Energy Star
Tax Credits for Home Builders:
Eligible contractors need to fill out IRS Form 8908 PDF to get the tax credit. The IRS has provided the following guidance regarding the tax credits for constructing energy efficient new homes available under the Energy Policy Act of 2005:
- IRS Notice 2006–27provides guidance for the credit for building energy efficient homes other than manufactured homes.
- IRS Notice 2006–28 provides guidance for the credit for building energy efficient manufactured homes.
Home builders are eligible for a $2,000 tax credit for a new energy efficient home that achieves 50% energy savings for heating and cooling over the 2004 International Energy Conservation Code (IECC) and supplements. At least 1/5 of the energy savings must come from building envelope improvements. This credit also applies to contractors of manufactured homes conforming to Federal Manufactured Home Construction and Safety Standards.
There is also a $1,000 tax credit to the producer of a new manufactured home achieving 30% energy savings for heating and cooling over the 2004 IECC and supplements (at least 1/3 of the savings must come from building envelope improvements), or a manufactured home meeting the requirements established by EPA under the ENERGY STAR program.
Please note that, with the exception of the tax credit for an ENERGY STAR qualified manufactured home, these tax credits are not directly linked to ENERGY STAR. Therefore, a builder of an ENERGY STAR qualified home may be eligible for a tax credit but it is not guaranteed.
These tax credits apply to new homes located in the United States whose construction is substantially completed after August 8, 2005 and that are acquired from the eligible contractor for use as a residence from January 1, 2006 through December 31, 2009.
Tax Deductions for Commercial Buildings:
A tax deduction of up to $1.80 per square foot is available to owners or designers of new or existing commercial buildings that save at least 50% of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001. Partial deductions of up to $.60 per square foot can be taken for measures affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems. These tax deductions are available for systems “placed in service” from January 1, 2006 through December 31, 2013.
Take the ENERGY STAR Challenge to find the best opportunities for energy savings, set goals for improvement, and achieve superior energy efficiency.
- IRS Notice 2006-52 (6/2/2006) provides guidance on deduction for energy efficient commercial buildings.
- IRS Notice 2008-40 (4/7/2008) – Amplification of Notice 2006-52
- Qualified Software for Calculating Energy Savings
- Commercial Building Tax Deduction Coalition