WASHINGON —
The Internal Revenue Service today reminded individual and business taxpayers
that many energy-saving steps taken this year may result in bigger tax savings
next year.
The recently enacted 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.
The
IRS encouraged individuals and businesses to explore whether they are eligible
for any of the new energy tax provisions. More information on the wide range of
energy items is available on the special Recovery section of IRS.gov. For a larger
listing of ARRA’s energy-related tax benefits, see Fact Sheet 2009-10.
Tax
Credits for Home Energy Efficiency Improvements Increase
Homeowners
can get bigger tax credits for making energy efficiency improvements or installing
alternative energy equipment.
The IRS also announced homeowners
seeking these tax credits can temporarily rely on existing manufacturer certifications
or appropriate Energy Star labels for purchasing qualifying products until updated
certification guidelines are announced later this spring.
“These
new, expanded credits encourage homeowners to make improvements that will make
their homes more energy efficient,” said IRS Commissioner Doug Shulman. “People
can improve their homes and save money over the long run.”
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.
The
new law 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.
In addition, the new law has increased
the energy efficiency standards for building insulation, exterior windows, doors,
and skylights, certain central air conditioners, and natural gas, propane or oil
water heaters placed in service after Feb. 17, 2009.
IRS
guidance issued before the enactment of ARRA will be modified in the near future
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. The cap generally has been eliminated for these improvements beginning
in the 2009 tax year. The IRS today issued Notice 2009-41, which explains the
effects of this change.
Funding Options for Renewable
Energy Power Plants
Business taxpayers who place in
service facilities that produce electricity from wind and some other renewable
resources can choose one of three options to fund the project: a tax credit based
on the amount invested, a tax credit based on the energy produced or a grant.
The
flexibility to choose among these options was enacted as part of ARRA.
Taxpayers
may opt to claim the energy investment tax credit, which generally provides a
30 percent tax credit for investments in energy projects, instead of the production
tax credit, which can provide a credit of up to 2.1 cents per kilowatt-hour for
electricity produced from renewable sources.
Taxpayers
making qualified investments that are placed in service after 2008 and before
2014 (or 2013 for wind facilities) can make an irrevocable election to claim the
energy investment tax credit instead of the renewable electricity production tax
credit. IRS will issue guidance explaining how to make the election.
Taxpayers
also can claim a grant once the property is placed in service instead of claiming
either the energy investment tax credit or the renewable energy production tax
credit. For qualified renewable energy facilities, the grant is 30 percent of
the investment in the facility as long as construction begins in 2009 or 2010
and the property is placed in service before 2014 (2013 for wind facilities).
The Treasury Department will issue guidance explaining how the grant works and
how to apply.
Taxpayers electing to receive the grant,
created by the ARRA, will not be eligible for either of the tax credits. Proceeds
from the grants are not includible in the taxpayer’s gross income, but the
grant amount is subject to recapture if the property is disposed of or otherwise
ceases to qualify.
For more information on the renewable
electricity production tax credit under Section 45 see Notice 2008-60 and Notice
2008-48, and for more information on the energy investment tax credit under Section
48 see Notice 2008-68.
