Energy Incentives for Individuals in the American Recovery and Reinvestment Act
Update June 2016 — For updated information on the residential energy property credit, please see Energy Incentives for Individuals: Residential Property Updated Questions and Answers. For updated information on plug-in vehicles, please see Plug-In Electric Drive Vehicle Credit (IRC 30D).
Update as of Dec. 19, 2015 — This page has been updated to reflect the fact that the New Energy Efficient Home Credit (IRC 45L), which was set to expire at the end of December 2014, was extended for two years through December 2016 by the Protecting Americans from Tax Hikes Act (PATH Act) of 2015. Use Form 8908 to claim the Energy Efficient Home Credit.
Update Oct. 22, 2015 — This page has been updated to reflect the fact that the Residential Energy Property Credit (Section 1121) which was to expire at the end of December 2013, was extended for one year through December 2014 by the Tax Increase Prevention Act of 2014. For more information about the 2014 rules, see IRS Tax Tip 2015-38, “Cut Taxes and Save on Energy Bills with Home Energy Credits."
Update May 31, 2013 — This page has been updated to reflect the fact that the Residential Energy Property Credit (Section 1121), which was to expire at the end of 2011, was extended for two years through December 2013 by the American Taxpayer Relief Act of 2012. For more information about the 2012 - 2013 rules, see IRS Tax Tip 2013-48, "Get Credit for Making Your Home Energy-Efficient."
Update Nov. 4, 2011 — The Residential Energy Property Credit (Section 1121) was set to expire at the end of 2010, but was extended for one year by the Tax Relief and Job Creation Act of 2010. The credit is available for property placed in service in 2011, but with new rules and limitations. For more information about the 2011 rules, see the Special Edition Tax Tip 2011-08, "Home Energy Credits Still Available for 2011."
Update: Use 2009 Form 5695 to claim the Residential Energy Property credit and the Residential Energy-Efficient Property credit.
For information on energy-efficient products, visit the U.S. Department of Energy's EnergyStar website; not all Energy Star products qualify for the tax incentive.
The American Recovery and Reinvestment Act provides tax incentives for individuals to invest in energy-efficient products.
Residential Energy Property Credit (Section 1121): ARRA increased the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The law increased the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.
The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
A similar credit was available for 2007, but was not available in 2008. Homeowners should be aware that, for purposes of this tax credit, the standards in ARRA for products that qualify as “energy efficient” are higher than the standards for the credit that was available in 2007.
For property purchased before June 1, 2009, homeowners generally can rely on the manufacturers’ certifications and Energy Star labels that were available at the time of purchase for those products. Manufacturers have been advised that they should not continue to provide certifications for property that fails to meet the new standards. The IRS has issued Notice 2009-53 that will allow manufacturers to certify that their products meet the new standards. Please note, not all ENERGY STAR qualified products qualify for a tax credit. For detailed information about qualifying improvements, visit the U.S. Department of Energy’s EnergyStar website and the EnergyStar Frequently Asked Questions site.
Residential Energy Efficient Property Credit (Section 1122): This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. ARRA removed some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property. See Notice 2009-41.
Plug-in Electric Drive Vehicle Credit (Section 1141): ARRA modifies the credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity. The full amount of the credit available for a specific manufacturer’s vehicles will be reduced after that manufacturer has sold at least 200,000 vehicles. For more information, see: Questions and Answers, Notice 2009-54 and Notice 2009-89.
Plug-In Electric Vehicle Credit (Section 1142): ARRA also creates a special tax credit for two types of plug-in vehicles — certain low-speed electric vehicles and two- or three-wheeled 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 Feb. 17, 2009, and before Jan. 1, 2012. To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable. For more information, see: IR-2009-44 and Notice 2009-58.
Conversion Kits (Section 1143): ARRA also provided a tax credit for plug-in electric drive conversion kits. The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle and placed in service after Feb. 17, 2009. The maximum amount of the credit is $4,000. The credit does not apply to conversions made after Dec. 31, 2011. A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in a previous year.
Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT (Section 1144): Starting in 2009, ARRA allowed the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to ARRA, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This meant the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.
Questions and Answers
If you have questions about the energy incentives for individuals, these questions and answers might help.
- IR-2009-44, Energy-Saving Steps This Year May Result in Tax Savings Next Year
- Fact Sheet 2009-10, Energy Provisions of the American Recovery and Reinvestment Act of 2009
- U.S. Department of Energy’s EnergyStar website and the EnergyStar Frequently Asked Questions site
- Marketing products for partners
- Energy Incentives for Businesses in the American Recovery and Reinvestment Act
- The American Recovery and Reinvestment Act of 2009: Information Center