Green Tax Benefits Extended in 2011

Home & business energy tax credits still attractive for renewables, efficiency and electric vehicles

It may be too late to take advantage of green tax benefits for 2010, depending on when you file and what you did last year, but now is the right time to start thinking about energy-saving measures in 2011 that can result in federal tax savings. When President Obama extended the Bush-era tax cuts in December 2010, the action also included some green energy tax breaks – the tricky part is knowing what changes have been made and how you might take advantage of them.

“When in doubt about specific tax laws regarding energy technologies and energy efficiency measures, the best thing to do is to talk to a professional,” advised Walter Wang, managing director of Sunflower Tax, a San Diego, Calif., consulting company focused on the alternative energy market.

Wang spoke at a workshop at the California Center for Sustainable Energy, during which he outlined current federal tax law benefits in areas related to energy efficiency, renewable energy and plug-in electric vehicles. He said there are tax breaks for both homeowners and businesses making energy upgrades, installing solar or buying a zero-emissions car.

For the homeowner

There have been big changes in residential energy efficiency income tax credits – 2011 will not be as generous. For several years, the feds have offered a 30 percent credit, up to a maximum of $1,500 for qualifying energy improvements. For 2011, the percentage falls to 10 percent with a $500 lifetime limitation. Qualified improvements include home insulation, exterior windows and doors and certain roofing materials. You can also include some larger items, defined as residential energy property expenditures, such as efficient central air conditioners, main air circulating fans or water heaters. Be aware that there are dollar limits on some individual items. This credit is set to expire Dec. 31, 2011.

Not much has changed for residential renewable energy income tax credits. The 30 percent credit still applies for installing solar electric, solar water heating, small wind energy projects, geothermal heat pumps and fuel cells. The only caveat is for fuel cells – there is a limitation of $500 per each 500 watts (1/2 kilowatts) of generation capacity. Current plans call for this credit to be effective until Dec. 31, 2016.

For the business owner

There are federal tax deductions for commercial building energy efficiency upgrades that allow taxpayers to recoup business expenses in the year they are made that would normally be recovered through depreciation over many years. The 179D deduction (also known as EPAct for Energy Policy Act) provides $1.80 per square foot of a building for improvements that are certified as reducing the total annual energy costs by 50 percent or more when compared to an energy-fit reference building.

The 179D deduction applies to building envelope, interior lighting, HVAC and hot water systems. A reduced 179D deduction can also be applied to certain improvements when the 50 percent requirement is not met, providing there is certification that systems achieve a specified target. All 179D deductions must be verified by approved energy efficiency software.

When it comes to renewable energy for commercial properties there is special news: “bonus depreciation.” While the 30 percent tax credit for renewable energy installations remains in effect, the way in which depreciation is handled has changed. If the business has the “tax appetite” for a larger deduction, the 100% value of the depreciation can be taken in the first year rather than over the standard five years. And for qualified energy projects that are put into service by Dec. 31, 2011, the taxpayer can get a grant in lieu of tax credit – a cash payment within 60 days after project completion. Be aware that there are plenty of rules and requirements for these commercial renewable energy deductions. The bonus depreciation is 100 percent in 2011 and goes to 50 percent for 2012-13.

Plug-In Electric Vehicles

As a way to stimulate further adoption of zero-emission vehicles, the federal government offers individuals and businesses a tax credit up to $7,500 for each highway-capable battery-powered plug-in electric vehicle. The base credit is $2,500, and you add additional credit depending on the vehicle’s battery size. The full credit amount is available for the Tesla Roadster, CODA sedan, Nissan LEAF, Chevrolet Volt and Wheego LiFe EV. A credit of $2,500 is available for certain low-speed neighborhood electric vehicles.

Plug-In electric vehicle charging stations qualify for a 30 percent tax credit, with a $1,000 limit for individuals and $30,000 for businesses. This tax credit is set to expire Dec. 31, 2011.

For Further Information

Department of Energy, Tax Credits for Energy Efficiency

Internal Revenue Service, Energy Incentives for Business, Energy Incentives for Individuals

ENERGY STAR, 2011 Federal Tax Credits