Posted by: jeb1 | January 29, 2009


Lauren Stinson


Heard, McElroy & Vestal, LLP

Used by permission of Heard, McElroy & Vestal, LLP


            Federal and state legislatures have recently passed acts that enable a taxpayer to get up to an 80% tax credit!  This credit is for installing particular types of energy efficient property into their homes or apartment complexes. 

The 2005 Energy Policy Act was passed by the federal government, and it launched the national promotion of using energy efficient materials in residential property.  This act gave taxpayers a 30% tax credit up to a maximum of $2,000 for using solar hot water systems, solar electric systems, and fuel cells.  The credit has been extended and updated with the Emergency and Stabilization Act of 2008.

            The 2008 act enables taxpayers to receive a 30% credit, subject to certain limitations depending on the property installed.  The credit is for qualified expenditures on a residence located in the United States, and the expenditures can include labor costs for preparation, assembly, or installation of the qualified systems.  It also allows the credit to be taken against alternative minimum tax (AMT) and any excess credit in one year can be carried over to the next year.  The act contains two federal credits.  The first is the Residential Energy Property Credit, which allows certain energy efficient property placed in service in 2009 to qualify.  The second credit is the Residential Alternative Energy Credit.  It went into effect January 2008 and is set to expire the end of 2016. 

            Qualified property for the Residential Energy Property Credit includes exterior doors, windows, metal roofs, asphalt roofs with cooling granules, insulation, furnaces, central air conditioners, water heaters, and certain stoves that use renewable plant-derived fuel.  The credit has a lifetime limit of $500 and no more than $200 of this amount can be for windows.  The water heater must be natural gas, propane, or oil and must have an energy factor of at least .80 or thermal efficiency of at least 90 percent.  The stove must have a thermal efficiency rating of at least 75 percent and must burn biomass fuel.  This property must be installed in the taxpayer’s principal residence. 

The Residential Alternative Energy Credit includes solar electric, solar water heat, and fuel cell property, and now extends to include small wind energy systems and geothermal heat pumps.  Solar energy property uses a system that collects or absorbs sunlight for conversion to electricity or that collects or absorbs solar energy for conversion to heat.  Solar electric property has a maximum credit of $2,000 for systems placed in service between from 2006-2008 and no maximum for systems placed in service after 2008.  Solar water heated property has a credit maximum of $2,000 and may be taken for property placed in service beginning in 2006.  At least half of the energy used to heat the water must be from solar energy in order to qualify.  This credit specifically excludes the solar heating of swimming pools and hot tubs.  The property for these credits may be installed in any residence of the taxpayer, not just the principal residence.  Fuel cell property is an integrated system that converts fuel into electricity using electrochemical means.  To qualify, the system must have a nameplate capacity of at least 0.5 kilowatt of electricity using an electrochemical process and electricity-only generation efficiency greater than 30%.  The credit is limited to $500 per half kilowatt and must be installed after January 1, 2006, in the taxpayer’s principal residence.

            Two new qualifying properties added in the 2008 act are small wind energy property and geothermal heat pumps.  Small wind energy property primarily intercepts and converts wind energy into mechanical or electrical energy for use or storage.  The property must use a small wind turbine, not to exceed capacity of 100 kilowatts, to generate electricity.  This property has a credit maximum of $500 per half kilowatt, not to exceed $4,000 annually.  Geothermal heat pump is any equipment that both uses ground or ground water as thermal energy source to heat or cool a building.  The maximum credit is $2,000, and in order to obtain the credit, the pump must meet the requirements of the Energy Star program.  Both small wind energy property and geothermal heat pumps must be placed in service after January 1, 2008, and do not have to be in connection with the taxpayer’s principal residence.

            In addition to the federal tax credit, Louisiana tax regulations offer a tax credit through the Act of 371 of 2007.  The credit applies to property placed into service in or after 2008, and is not set to expire.  It covers solar hot water, solar electric, solar pool heaters (which include swimming pools and hot tubs) and wind generators.  A 50% tax credit is allowed up to a maximum of $12,500 and may be taken on multiple systems in the same home.  Additionally, if the credit is larger than the individual’s Louisiana tax liabilities for the year, the state will issue a check for the difference plus interest as a refund.  The state credit can be taken in addition to the federal credit and therefore, when combined, an individual can get up to an 80% tax credit on qualified energy efficient systems. 

            We are now living in a time when our citizens are becoming environmentally conscious.  These tax credits will make it easier for everyone to become eco-friendly as well.  Installation of these energy efficient properties will not only benefit the environment, but will also enable those participants to receive an advantageous tax break.

IRS Circular 230 Disclosure: To ensure compliance with U.S. Treasury Regulations governing tax practice, we inform you that any U.S. federal tax advice contained in this communication, including any appendices, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties under U.S. federal tax law, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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