Clockwise from top left: Wind systems and digital thermostats can help save energy; solar panels provide an alternative energy source; electric vehicle tax credits can be as high as $7,500; and insulating a home might also qualify for tax credits.
Energy Tax Credits
The Recovery Act extended many of the consumer tax incentives originally introduced in the Energy Policy Act (2005) and later amended in the Emergency Economic Stabilization Act (2008). As a result, you can still receive tax credits for as much as 30% of the cost to install renewable energy sources or energy efficient systems (solar power, for instance, or new windows) in your home. You can also get credits for certain types of plug-in electric vehicles.
Tax credits can be more helpful than tax deductions because credits are directly subtracted from the amount of taxes owed. However, deductions only reduce the total amount of taxable income and thus a smaller percentage of the amount owed. (A $1,000 tax credit applied to a $5,000 tax bill reduces the bill to $4,000; a $1,000 tax deduction, subtracted from total taxable income, may only yield a $100 reduction in the overall tax bill, leaving the taxpayer owing $4,900.)
Home Energy Efficiency Improvements
Installation of certain products or equipment in a principal residence can qualify for a tax credit equal to 30% of cost, with the maximum credit capped at $1,500. The products or equipment, must be installed between January 1, 2009 and December 31, 2010 and include energy-efficient:
- Exterior doors
- Heating and/or cooling systems
- Heat-resistant roofs
Home Renewable Energy Sources
Installing renewable energy systems – in either a principal or second home – can qualify for a tax credit equal to 30% of costs with no maximum cap. Consumers have until December 31, 2016 to install:
- Solar water heating and/or solar electric power
- Small wind systems
- Geothermal heat pumps
- Microturbine systems
EnergyStar.gov's Federal Tax Credits for Energy Efficiency has complete details for both programs. See also the Database of State Incentives for Renewables and Efficiency (DSIRE) for information on federal, state, local, and utility incentives.
Plug-in Electric Vehicles
Under the Recovery Act, certain plug-in electric vehicles can qualify for tax credits worth up to $7,500.
- Four or more wheels – Vehicles must be new and purchased after December 31, 2009, have a gross weight less than 14,000 pounds, and use a rechargeable battery with at least 4 kilowatt hours. The credit ranges from $2,500 to $7,500, depending on battery capacity.
- Two or three wheels – Scooters propelled by an electric motor with a battery with 2.5 kilowatt hour capacity can qualify for a credit equal to 10% of the vehicle’s cost up to a maximum of $2,500. The scooter must have been bought after February 17, 2009 and before January 1, 2012.
- Low speed – The Internal Revenue Service allows a credit equal to 10% of cost up to a maximum of $2,500 for “low speed vehicles,” which the agency defines as having at least 4 wheels; made primarily for use on public streets, roads and highways; able to attain within one mile a speed greater than 20 miles per hour but less than 25 miles per hour on a paved level surface; and weighs less than 3,000 pounds. Typically, these include golf carts, the GEM, and other vehicles used primarily for short trips. They must have been purchased after February 17, 2009 and before January 1, 2012.
- Conversion kits – A credit equal to 10% of cost up to a maximum of $4,000 is available for kits that will convert a standard vehicle to plug-in electric drive. conversion must be made prior to December 31, 2011.
For more details, see the IRS publication Recovery Act Energy Incentives for Individuals.
Back to Featured Stories