Going Green Can Save You Taxes

When you invest in energy-efficient products, you may be saving money on both your energy bills and your tax return. The Internal Revenue Service (IRS) wants you to know about six energy-related tax credits created or expanded by the American Recovery and Reinvestment Act of 2009.

Residential Energy Property Credit. Homeowners who make qualified energy-efficient improvements to their existing homes may be eligible for a tax credit equal to 30 percent of the cost of all qualifying improvements. The maximum credit is $1,500 for improvements placed in service during 2009 and 2010 combined. The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.

Residential Energy Efficient Property Credit. Individual taxpayers can get a tax break to help pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines installed on or in connection with their home and geothermal heat pumps installed on or in connection with their homes, as long as they are located in the United States. The credit, which runs through 2016, equals 30 percent of the cost of qualified property. Previously imposed annual maximum dollar limits were removed starting in 2009.

Plug-in Electric Drive Vehicle Credit. This credit, which was modified last year, is available for qualified plug-in electric drive vehicles purchased during calendar years 2010 through 2014. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500. The maximum credit tops out at $7,500, depending on the battery capacity. The credit phases out with respect to each manufacturer after 200,000 qualifying vehicles are sold by the manufacturer.

Plug-in Electric Vehicle Credit. The purchase of two types of plug-in electric vehicles qualifies for this credit: certain low-speed electric vehicles and two- or three-wheeled electric vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after February 17, 2009 and before January 1, 2012.

Credit for Plug-in Electric Conversion Kits. This credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle. The credit is capped at $4,000 per conversion. The vehicle must be placed in service after February 17, 2009 and before January 1, 2012.

Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT. Starting in 2009, the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, can be applied against the Alternative Minimum Tax (AMT). Previously, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.

Make sure you check the IRS website for additional information about these credits and more that can save you money as you prepare your tax returns.

Posted April 6, 2010.