Energy Efficient Credits for 2009 and 2010

In 2009 and 2010, taxpayers may receive a tax credit for energy efficient improvements made to their principal residence.  However, you need to be very careful to make certain that all the provisions of the law are met, as this is a detailed piece of legislation with specific requirements.

Generally, you can deduct up to 30 percent of the cost of qualifying improvements up to a maximum of $1,500.  Unfortunately, the $1,500 limit is a combined limit for 2009 and 2010.  Qualifying improvements include insulation, windows, doors, fuel cells, roofing, heating and air conditioning units, water heaters, geo-thermal heat pumps, biomass stoves, solar energy systems (but not for pools), and small wind energy systems.

The improvement must be placed in service between January 1, 2009 and December 31, 2010.  The improvements generally must be for the taxpayer’s principal residence.  However, geothermal heat pumps, solar panels, solar water heaters, fuel cells, and small wind energy systems qualify if installed in a second home.  The credit for windows, doors, insulation, roofs, heating and air conditioning, or non-solar water heaters is not available for new construction.

Energy standards for the current credit are more stringent than for the 2007 credit.  The manufacturer must certify that the improvement meets the standard and must provide a written statement to that effect.  The statement may be in printable form on the manufacturer’s website.

In order to take the credit, Form 5695 should be completed and included with your 1040.  The credit is to be taken in the year the improvements were made.

There are two credits for the purchase of certain energy-efficient vehicles.  The credit for hybrid gasoline-diesel, diesel, battery-electric, alternative fuel, and fuel cell vehicles varies in amount.  The credit is based on a formula determined by the vehicle weight, technology, and fuel economy.  It is limited to the first 60,000 vehicles per manufacturer.  The credit for Toyota and Honda has been phased out at this time.

The second vehicle credit is between $2,500  and $7,500 and is for plug-in hybrid electric vehicles.  The amount of the credit depends on the capacity of the battery system.  It is effective for vehicles purchased between January 1 and December 31, 2009. It has been extended beyond that date but phases out based on the number of vehicles sold by the manufacturer.

It is obvious that the energy credits are not simple credits to take on your tax return.  Foremost, you should be certain that the property being purchased will qualify for the credit. For the residential energy credits, it must be in writing.  For vehicles, ascertain that the credit for the particular vehicle is still available.  Forms for claiming the credit vary depending on the specific credit that you are taking.