Energy Related Federal Tax Incentives

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This section includes summaries of current energy related federal tax incentives. The Governor’s Energy Office (GEO) provides this information for summary purposes only. It was not prepared by or in consultation with the advice of a tax professional and should not be interpreted as such. In the event of specific questions, an experienced attorney or financial advisor should be contacted for guidance on the applicable tax incentives. The incentives are categorized by topic. The Database of State Incentives for Renewables and Efficiency also provides a comprehensive list of incentives by state.

General Notes

All home improvements must be installed between January 1, 2009 and December 31, 2010
Improvements must be for taxpayer's principal residence
The maximum that may be claimed to your Federal taxes is $1,500 for all products installed in 2009 & 2010. Geothermal heat pumps, solar water heaters, solar panels, fuel cells, and windmills are not subject to the $1,500 cap, and are available through 2016
You must have a Manufacturer Certification Statement to qualify for a credit
Make sure to save your receipts and the Manufacturer Certification Statement for your tax records
Use IRS Tax Form 5695 (2009 version) for all improvements installed in 2009

Energy Efficiency Incentives

Consumer tax credit of 30% for energy efficiency improvements to the home. This includes energy efficient biomass fuel stoves, Water Heaters, Furnaces, Boilers, Heat pumps, Air conditioners, and residential building envelope improvements (insulation, new windows, doors, roofs). The credit applies to eligible equipment purchased between January 1, 2009, and December 31, 2010. Aggregate amount of credit for all technologies placed in service in 2009 and 2010 combined is limited to $1,500.
New energy efficient home property tax credit for the construction of new homes that achieve a 30% or 50% reduction in heating and cooling energy consumption relative to a comparable home. The credit for 30% efficiency is $1000, and the credit for 50% efficiency is $2000. Expires 12/31/2009
Energy efficient buildings deduction to owners of new or existing commercial buildings who install interior lighting OR HVAC OR hot water systems that reduce to the building's total energy and power cost by 50% or more relative to a comparable building. Deduction equals up to $1.80 per square foot depending on the technology and energy reduction. Systems must be installed between 1/1/06 and 12/31/2013.
Accelerated depreciation for smart meters and smart grid systems and recycling equipment placed in service during 2008 and 2009.
$3.2 billion in Qualified Energy Conservation Bonds (QECBs) to state and local government initiatives designed to reduce greenhouse gas emissions. QECBs can be issued to finance capital expenditures incurred for reducing energy consumption by at least 20%, implementing green community programs and rural development involving production of electricity from renewable resources.
Manufacturer tax credits for sales of high-efficiency refrigerators, clothes washers, dishwashers, and dehumidifiers. Expires 12/31/2010

Solar Energy Incentives

Investment Tax Credit (ITC) of 30% of installation costs, including solar energy equipment and labor, with no maximum credit limit for commercial systems. Eligible property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. Credits are available for eligible systems placed in service between 12/31/2008 and 12/ 31/2016.
Investment Tax Credit (ITC) of 30% of installation costs, including solar energy equipment and labor, for residential systems. A cap of $2,000 applies to all solar (photovoltaic and domestic hot water) systems installed on or before 12/31/2008; no cap exists for solar photovoltaic beginning 01/01/2009.

Wind Energy Incentives

Investment Tax Credit (ITC) of 30% of total installed costs with no maximum credit limit for small wind systems (100kW capacity or less) for home, farm, or business use. This applies to small wind systems placed in service after 12/31/2008.
Production Tax Credit (PTC) of 2.1 cents/kWh for wind facilities placed in service before 12/31/2012. Duration: 10 years after the facility is placed in service.

Geothermal Energy Incentives

Investment Tax Credit (ITC) of 30% of expenditures, with no maximum credit limit, for geothermal energy property, including geothermal heat pumps and equipment used to produce, distribute or use energy derived from a geothermal deposit. For electricity produced by geothermal power, equipment qualifies only up to, but not including, the electric transmission stage. For geothermal heat pumps, this credit applies to eligible property placed in service between 10/3/2008 and 12/31/2016.
Production Tax Credit (PTC) of 2.1 cents/kWh for geothermal facilities placed in service between 8/8/2005 and 12/31/2013. Duration: 10 years after the facility is placed in service.

Fuel Cells Incentives

Investment Tax Credit (ITC) of 30% of expenditures for commercial fuel cell property. The credit is capped at $1,500 per 0.5 kW of capacity, an increase from $500 for systems installed on or before 10/3/2008. Eligible property includes fuel cells with a minimum nameplate capacity of 0.5 kW that have an electricity-only generation efficiency of 30% or higher. Expires: 12/31/2016
Investment Tax Credit (ITC) of 30% of expenditures for residential fuel cell property. Eligible property includes fuel cells with a minimum nameplate capacity of 0.5 kW that have an electricity-only generation efficiency of 30% or higher. Maximum credit: $500 per 0.5kW Expires: 12/31/2016

Other Renewable Energy Incentives

Investment Tax Credit (ITC) of 10% of expenditures, with no maximum credit limit stated, for microturbines with system size of up to 2 MW in capacity that have an electricity-only generation efficiency of 26% or higher. The credit is capped at $200 per kW of capacity. Expires: 12/31/2016
Investment Tax Credit (ITC) of up 10% of expenditures for combined heat and power (CHP) systems. Eligible CHP property generally includes systems up to 50 MW in capacity that exceed 60% energy efficiency, subject to certain limitations and reductions for large systems. The efficiency requirement does not apply to CHP systems that use biomass for at least 90% of the system's energy source, but the credit may be reduced for less-efficient systems. Credit applies to systems placed in service between 10/03/2008 and 12/31/2016.
Additional authorization for $1.6 billion in Clean Renewable Energy Bonds (CREBs) to finance facilities that generate electricity from wind, (closed-loop or open-loop) biomass, geothermal, small irrigation, qualified hydropower, landfill gas, marine renewable and trash combustion facilities. Public power providers, governmental bodies, and electric cooperatives are each reserved an equal share (33.33%) of the most recent allocation. The termination date for existing clean renewable energy bonds is 12/31/2009.
Deferral of gain on sales of transmission property by vertically integrated electric utilities to FERC-approved independent transmission companies. Applies to sales occurring before 01/01/2010

Transportation & Alternative Fuels Incentives

Credit for the purchase of Qualified Alternative Fuel Motor Vehicle. Qualifying alternative fuels are those powered by natural gas, liquefied petroleum gas, hydrogen, and fuel containing at least 85% methanol. The vehicle must be placed in service as an alternative fuel vehicle on or after January 1, 2006. This tax credit expires December 31, 2010.
Credit for plug-in electric drive vehicles ranging from $2,500-$7,500. The credit can be applied to the Alternative Minimum Tax (AMT) liability. The credit will begin to be phased out for each manufacturer in the second quarter following the calendar quarter in which a minimum of 200,000 qualified plug-in electric drive vehicles have been sold by that manufacturer for use in the U.S. This tax credit applies to vehicles acquired after December 31, 2009, and expires December 31, 2014. Through December 31, 2011, qualified plug-in electric vehicle conversions are also eligible for a tax credit for 10% of the conversion cost, not to exceed $4,000.
Allowance for limited fringe benefits provided by employers to employees who commute to work by bicycle to offset the costs of such commuting (e.g., storage).
Allowance of up to $230 a month until 2011 for public transportation costs for employees that use public transit.
Alternative Refueling Stations Property Tax Credit for 30% of the property for natural gas or E85 pumps, not to exceed $30,000, placed into service before January 1, 2009. The credit is up to 50% for property placed into service on or after 1/1/2009, not to exceed $50,000. Consumers who purchase residential fueling equipment may receive a tax credit of up to $1,000, which increases to $2,000 for equipment placed into service after December 31, 2008. Expands the tax credit to apply to electric vehicle recharging property. Expires: 12/31/2010
Alternative Fuels Excise Tax Credit for all fuels, except hydrogen. Biomass gas versions of liquefied petroleum gas and liquefied or compressed natural gas, and aviation fuels qualify for the credit. Expires: 12/31/2009
Production Tax Credit (PTC) of $1/gal for biodiesel and $1/gal diesel fuel from biomass. Regardless of the process used, as long as the fuel is usable as home heating oil, as a fuel in vehicles, or as aviation jet fuel. Only qualified fuel produced in the U.S. between January 1, 2009, and December 31, 2012, for use in the U.S. may be eligible.
Diesel fuel created by co-processing biomass with other feedstocks (e.g., petroleum) will be eligible for the 50¢/gallon tax credit for alternative fuels. Expires: December 31, 2009.
Taxpayers are allowed to immediately write off 50% of the cost of facilities that produce cellulosic biofuels ethanol if such facilities are placed in service before 01/01/2013.
Section 9004 of the 2008 Farm Bill: Repowering Assistance – Provides for payments to biorefineries to replace fossil fuels used to produce heat or power to operate the biorefineries with renewable biomass. $35 Million for FY 2009 that will remain available until the funds are exhausted with additional funding of $15 million per year, from FY 2009 through 2012.
Section 9005 of the 2008 Farm Bill: Bioenergy Program for Advanced Biofuels – Provides for payments to be made to eligible agricultural producers to support and ensure an expanding production of advanced biofuels. $55 Million in FYs 2009 and 2010; $85 Million in FY 2011; $105 Million in FY 2012 with additional funding of $25 million per year, from FY 2009 to 2012
Section 9013 of the 2008 Farm Bill: Community Wood Energy Program – Provides grants to state and local governments to develop community wood energy plans and to acquire or upgrade wood energy systems. $5 Million per year from FY 2009 through FY 2012.
Section 9007 of the 2008 Farm Bill: Rural Energy for America Program – Expands and renames the program formerly called the Renewable Energy Systems and Energy Efficiency Improvements Program. Provides grants and loan guarantees for energy audits, feasibility studies and project development of renewable energy systems and energy efficiency improvements. Adds hydroelectric source technologies and energy audits as eligible costs. Increases loan limits. $55 Million for FY 2009; $60 Million for FY 2010; $70 Million for FYs 2011 and 2012 with additional funding of $25 Million per year, from FY 2009 through 2012.

Business Note: The American Recovery and Reinvestment Act of 2009 (H.R. 1) allows taxpayers eligible for the federal renewable electricity production tax credit (PTC) to take the federal business energy investment tax credit (ITC) or to receive a grant from the U.S. Treasury Department instead of taking the PTC for new installations. The new law also allows taxpayers eligible for the business ITC to receive a grant from the U.S. Treasury Department instead of taking the business ITC for new installations.

Residential Note: The American Recovery and Reinvestment Act of 2009 does not allow taxpayers eligible for the residential renewable energy tax credit to receive a U.S. Treasury Department grant instead of taking the credit.

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