Posted: 7/30/2009
Homeowners can now get bigger tax credits for making energy efficiency improvements or installing alternative energy equipment.
The American Recovery and Reinvestment Act (ARRA) of 2009 contained a number of either new or expanded tax benefits on expenditures to reduce energy use or create new energy sources.
"Individual taxpayers and business owners should explore whether they are eligible for any of the new energy tax provisions," said Clay Sanford with the IRS Dallas office. "More information on the wide range of energy items is available on a special section of IRS.gov."
ARRA provides for a uniform credit of 30 percent of the cost of qualifying improvements up to $1,500, such as adding insulation, energy-efficient exterior windows, and energy-efficient heating and air conditioning systems. The new law replaces the old law combination available in 2007 of a 10-percent credit for certain property and a credit equal to cost up to a specified amount for other property. ARRA also raised the limit on the amount that can be claimed for improvements placed in service during 2009 and 2010 to $1,500, instead of the $500 lifetime limit under the old law.
That means if you spend a thousand dollars on new insulation you could get $300 back in the form of a tax credit.
"With hot weather on our heels, some Texans may already be thinking about adding insulation or a new air conditioning system to their home," Sanford said. "Now, they can cool off with some nice tax credits, too."
Sanford noted that more than 50 million dollars in Residential Energy Tax Credits were requested by Texans on tax year 2006 returns.
In addition, the new law has increased the energy efficiency standards for building insulation, exterior windows, doors, skylights, certain central air conditioners, and natural gas, propane or oil water heaters placed in service after Feb. 17, 2009.
"So, in order to qualify for the credit, you would have to place items into service after Feb. 17, 2009," Sanford clarified.
IRS guidance issued before the enactment of ARRA will be modified soon to reflect the new energy efficiency standards. In the meantime, homeowners may continue to rely on manufacturers’ certifications that were provided under the old guidance and on Energy Star labels for exterior windows and skylights in determining whether property purchased before June 1, 2009, qualifies for the credit. Manufacturers should not continue to provide certifications for property that fails to meet the new standards.
The new law also eliminates the cap on the 30 percent tax credit for alternative energy equipment, such as solar water heaters, geothermal heat pumps and small wind turbines, installed in a home.
"For instance, a $10,000 purchase of qualifying solar water heaters should result in a $3,000 credit," Sanford explained.
The cap generally has been eliminated for these improvements beginning in the 2009 tax year.
