So, you are going green, want to help the environment, or maybe just save a little money in energy bills and you made some energy efficient improvements to your home or you bought a green car. You may be in luck, in addition to accomplishing your goal, you may also qualify for a tax credit!

The ‘Residential Energy Property Credit’ is part of the ‘American Recovery and Reinvestment Act (ARRRA)’. For existing homeowners, it increases the tax credit of up to $1,500 per year for energy efficient improvements or 30% of the total bill, whichever is less. This includes improvements like adding insulation, energy efficient exterior windows and energy efficient heating & air-conditioning systems. The credit is good for this tax year, 2009, as well as next year 2010. 

To use the credit, the IRS must be keeping some of your money. If you get 100% of your withholdings back, then you can not take advantage of this credit. For example, if you qualify for the full $1,500 credit on energy efficient windows, then if the IRS keeps $1,500 or more, then you may use the full amount of the credit. If the IRS keeps less than $1,500, you'll get a credit equal to the amount that they keep, even though you qualified for more credit. That is because this is a non-refundable credit.

How do you know if your improvement qualifies? The manufacturer must certify that it meets energy efficiency requirements.

Here is a list of some other items that qualify under this credit:

  • Qualified residential alternative energy equipment such as solar hot water heaters, geothermal heat pumps and wind turbines 

Automobiles also come under this credit too. Below is a list of qualifiers and the range of tax credit offered based upon the car purchased.

  • Plug-in electric drive vehicles if:
    • 4 Wheels or more
      • Newly purchased
      • Has a gross vehicle weight rating of less than 14,000 pounds
      • Draws propulsion using a battery with at least 4 kilowatt hours that can be recharged from external electricity
      • Credit can range from $2,500 to $7,500 depending on the batter capacity. The credit is reduced after the car manufacturer has sold 200,000 units.
    • Less than 4 wheels
      • Newly purchased
      • Low speed electric vehicles
      • Battery capacity must be 2.5 kilowatt hours
      • This credit is 10% of the cost up to a maximum of $2,500 for purchases between 2/17/2009 and 1/1/2012.
  • Conversion kits for plugged in electric drive if:
    • Credit is 10% of the cost of the kit up to $4,000
    • Must be purchased between 02/17/2009 and 12/31/2011
    • You may claim this credit even if you purchase a hybrid in the same year

So go ahead and save some energy. The government may reward you for your good deed! Now, understanding the Residential Energy Property credit should be much simpler!

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.