A Federal Energy Tax Credit Can Help to Pay for a Renewable Energy Project

Written by: Harlan Bengtson • Edited by: Lamar Stonecypher
Updated May 25, 2010 • Related Guides: Wind Energy | Renewable Energy Sources

A Federal energy tax credit is available in the U.S. to help pay for a renewable energy project. An energy tax credit can be used for a variety of renewable energy projects, like solar energy or wind energy. There is also an energy efficiency tax credit for increasing building energy efficiency.

Introduction

A variety of renewable energy projects qualify for a state and/or Federal energy tax credit in the U.S. An energy tax credit can help to pay for solar, wind energy, and energy efficiency projects. Many consumer tax incentives that were originally introduced in the Energy Policy Act of 2005 (EPACT) and amended in the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), were extended in the American Recovery and Reinvestment Act of 2009. More information about the federal energy tax credit (including the energy efficiency tax credit) and how you can get in on it follows in this article.

The Energy Tax Credit for Residential Property Owners

The Federal energy tax credit for residential renewable energy projects covers solar space heating, soalr water heating, solar electric systems, small wind systems,

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geothermal heat pumps, and residential fuel cell and microturbine systems. Adding any of these renewable energy systems to your home will give you a 30% energy tax credit for U.S. federal income tax, if the system is placed in service before December 31, 2016. The previous limit on the maximum amount of this energy tax credit is no longer present.

Energy efficiency improvements for an existing home that is your primary residence also qualify for an energy efficiency tax credit. Products such as energy-efficient windows, insulation, doors, roofs and heating and cooling equipment can receive an energy efficiency tax credit for 30% of the cost up to $1500. The energy efficiency improvements must be placed in service between January 1, 2009 and December 31, 2010. See the Energy Star site for more details.

An Automobile Related Energy Tax Credit

An energy tax credit is available for hybrid gas-electric or alternative fuel vehicles. This energy credit applies to individuals and businesses who buy or lease a new hybrid gas-electric car or truck that is placed in service between January 1, 2006 and December 31, 2010. The amount of the energy tax credit depends on the fuel economy and the weight of the vehicle. If the purchased hybrid vehicle

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uses less gasoline than the average vehicle that has similar weight and meets emission standards, then it qualifies for the energy tax credit. This energy credit is being phased out at the point when any manufacturer has sold 60,000 eligible vehicles. After that point, the amount of the energy tax credit is gradually reduced over a 15 month period.

A qualified plug-in electric vehicle purchased after December 31, 2009, is eligible for a $2500 to $7500 energy tax credit, based on the battery capacity of the vehicle. To be eligible, the plug-in electric vehicle must have four or more wheels, have a gross vehicle weight of less than 14,000 lb, and be powered by a battery of at least four kilowatt hours that can be recharged from an external source of electricity.

The Energy Tax Credit for Businesses

There are several energy tax credits for businesses. There is an energy investment tax credit (ITC) that amounts to a 30% energy tax credit for investment in solar energy, qualified fuel cell, and wind energy property. A production tax credit (PTC) can be claimed for producing electrical power from wind, geothermal, biomass and marine renewable sources. It is also possible to write off 50% of the cost of a facility to produce cellulosic biofuels ethanol as an energy tax credit. Based on the American Recovery and Reinvestment Act of 2009, a 30% tax credit can be taken instead of the production tax credit for facilities to produce electrical power from renewable energy sources. In the energy efficient buildings arena, up to $1.80 per square foot of building floor area can be claimed as an energy efficiency tax credit for energy efficiency improvements to commercial buildings.

Summary

A Federal energy tax credit can be used to defray the cost of a wide variety of renewable energy projects, such as solar, wind or geothermal energy for homes or commercial buildings. An energy efficiency tax credit can be obtained for projects that improve the energy efficiency of existing homes of buildings. Finally, a Federal energy tax credit is available for hybrid electric, alternate fuel, or plug in electric vehicles.