Tax Incentives for Energy Efficiency: An Update

Key Points
· A number of energy efficiency tax incentives exist under current law, some of which will soon expire.
· Pending legislation may extend or renew these incentives, plus make significant changes or additions.
· States also offer a variety of tax incentives. See the DSIRE database for information about programs in Utah and other states.

Energy legislation passed into law over the past several years has provided a number of tax incentives for energy efficiency upgrades and new equipment purchases. While some of these incentives are well-known, others have received less attention. Expiration dates are looming for some of these incentives, while others have already expired and are awaiting legislative action for extension or renewal. This article highlights major energy efficiency tax incentives and how pending legislation may change these incentive programs and impact your energy efficiency investments.

Commercial Building Tax Deduction
The "Commercial Building Tax Deduction" created by the Energy Policy Act of 2005 is currently available through December 31, 2013. Commercial building owners can claim the deduction for energy efficiency expenditures incurred on eligible commercial buildings. Eligible projects must be installed in, or on, a building that is within the scope of ASHRAE Standard 90.1-2001 Energy Standard for Buildings Except Low-Rise Residential Buildings and is certified to be part of a plan

to reduce total energy consumption by 50% in relation to the ASHRAE standard. The deduction covers all energy-related expenses subject to a cap of $1.80 per square foot of building space, with allowances for partial deductions for improvements in interior lighting, HVAC and hot water systems, and building envelope systems. For more details about the deduction, see Internal Revenue Service (IRS) Notice 2006-52.

Legislation currently before Congress seeks to expand the scope of the deduction. The Expanding Building Efficiency Incentives Act of 2009 (S.1637 and H.R. 4226) would increase the deduction amount from $1.80 per square foot to $3.00. The bill also provides authority for partial deductions and a prescriptive partial compliance pathway for combined envelope and mechanical systems.

Energy-Efficient New Homes Tax Credit for Home Builders
This tax credit applies to new energy-efficient homes built by December 31, 2009. Builders can claim a tax credit of up to $2,000 for new homes that reduce heating and cooling energy consumption by 50% relative to the International Energy Conservation Code standard.

While the credit is not currently available for new homes built after January 1, 2010, legislation now before Congress would extend and expand the tax incentive. The Expanding Building Efficiency Incentives Act of 2009 extends the $2,000 credit through 2013 and creates a $5,000 credit for homes that have a total energy consumption level at least 50% below that set by the International Energy Conservation Code.

Manufacturers' Energy-Efficient Appliances Tax Credit
Manufacturers are eligible for tax credits for qualifying models of dishwashers, clothes washers, and refrigerators. The credits are available for models produced in 2008, 2009, and 2010. Credits are available in a tiered system depending on the efficiency of the model and date of manufacture. See the IRS Web site for details.

Residential Energy Efficiency Tax Credits
The federal tax credit for home energy efficiency improvements was established under the Energy Policy Act of 2005 and extended by subsequent legislation. The credit now applies to eligible equipment purchased between January 1, 2009, and December 31, 2010. Energy efficiency improvements in the building envelope of existing homes are eligible, as well as the
purchase of high-efficiency heating, cooling, and water-heating equipment. Taxpayers can claim up to 30% of total costs, subject to a cap of $1,500.

Tax credits for renewable energy systems such as geothermal heat pumps, solar energy, and wind energy were also modified starting in 2009. Geothermal heat pumps installed starting in 2009 are now eligible for a tax credit of 30% of the cost with no cap. Solar water heating and power systems, as well as small wind systems are also eligible for a 30% tax credit. These credits are effective through December 31, 2016.

For more information on the tax credits and qualified products, see the ENERGY STAR Web site.

Fuel-Efficient Vehicle Tax Incentives
Consumers (including businesses) are eligible for tax credits for the purchase of energy-efficient hybrid, diesel, electric, and alternative fuel vehicles. The Energy Policy Act of 2005 introduced tax credits for electric hybrid, clean burn diesel, and alternative fuel vehicles. Plug-in electric hybrid vehicle credits were added under the American Recovery and Reinvestment Act of 2009. The tax credits generally range up to $3,400, although incentives for plug-in electric vehicles can go as high as $7,500. Currently, the incentives last through 2010, although some vehicles are no longer eligible. See the U.S. Environmental Protection Agency's Tax Incentives Information Center for information about eligible vehicles and credit amounts.

State Incentives
Utah and most other states offer energy efficiency tax incentives and funding programs. For more information, contact your State Energy Office or see the Database of State Incentives for Renewable Energy (DSIRE).

For additional energy savings information and tools please use Rocky Mountain Power’s free “Business Solutions Toolkit” at www.rockymountainpower.net/toolkit