The Emergency Economic Stabilization Act of 2008, which was signed into law on October 3, 2008, includes numerous federal tax breaks for energy-related expenditures and activities. Here are 20 highlights:
1. New Business and Personal Tax Credit for Plug-In Electric Vehicles.
Beginning next year, a new tax credit for plug-in electric vehicles applies to qualifying new cars that are purchased by individuals and businesses. Used and leased vehicles do not qualify.
Vehicles must be placed in service in tax years beginning after 2008, and they must be purchased by no later than December 31, 2013.
The minimum credit is $2,500 for a vehicle powered by a traction battery with capacity of at least 4 kilowatt hours. An additional credit of $417 is allowed for each additional kilowatt hour of traction battery capacity until the applicable credit cap is reached. The cap is $7,500 for lighter vehicles. However, for heavy vehicles with gross vehicle weight ratings (GVWRs) in excess of 10,000 pounds, the cap is $10,000, $12,500, or $15,000 depending on the GVWR.
For vehicles produced by a particular manufacturer, the credit will be phased out over four quarters after that company has sold 250,000 qualifying vehicles in the U.S.
Despite the new credit, it may be difficult to go out shopping for a plug-in car after January 1. Automakers are racing to bring electric cars to market but it may be awhile before they are readily available. For example, the Chevrolet Volt is expected to launch toward the end of 2010. Still, the tax benefits might be worth waiting for. Once it's available, a Volt buyer is expected to receive a $7,500 tax credit after purchasing the vehicle with a price tag of around $30,000.
Advisory: For individual taxpayers, the electric vehicle credit is allowed against the alternative minimum tax (AMT).
2. The Business Energy Tax Credit Is Extended and Expanded.
The new law extends the business energy tax credit for qualifying solar, fuel cell, micro-turbine, and geothermal energy equipment for eight more years, to cover property placed in service through 2016. Here are the details:
• The credit for fuel cell equipment placed in service in tax years ending after October 3, 2008 is increased.
• Qualified wind energy equipment, geothermal heat pump systems, and combined heat and power system equipment placed in service in tax years ending after October 3, 2008 are made eligible for the credit.
• Public utility property placed in service in tax years ending after February 13, 2008 is also made eligible for the credit.
• Finally, the credit is allowed to offset AMT liabilities for tax years beginning after October 3, 2008.
3. The Tax Credit for Residential Energy-Saving Expenditures, Including Solar and Wind Equipment, Is Extended and Enhanced.
The credit for 30 percent of expenditures to install solar electricity generation equipment, solar water heating equipment, and fuel cell equipment in your residence was set to expire at the end of this year. For 2008 and earlier years, the maximum annual credit for solar electricity generation equipment is $2,000. It's the same for solar water heating equipment. For fuel cell equipment, the maximum annual credit for 2008 and earlier years is $500 per half kilowatt hour of capacity.
The new law extends the credit through 2016 and makes some changes:
• For 2008 to 2016, 30 percent of expenditures for wind energy equipment and geothermal heat pumps can also qualify for the credit (subject to annual dollar caps).
• For 2009 to 2016, the $2,000 annual cap on the credit for solar electricity generation equipment is removed, so a big expenditure can mean a big credit--starting next year. The annual dollar caps for solar water heating and fuel cell equipment will remain in place for 2009-2016.
• Finally, the credit can be used to offset both your regular tax and AMT bills for 2008 to 2016.
4. The Tax Credit for Other Energy-Efficient Home Improvements Comes Back Next Year. A separate credit for installing energy-efficient insulation, windows, doors, roofs, and heating and cooling equipment in your residence expired at the end of 2007. The new law restores it (with some minor changes) for 2009 while skipping over 2008 entirely. The maximum credit is only $500 over your lifetime, so it's helpful if you qualify, but if not, it's no big deal. In any case, you won't need to think about it again until next year.
5. The Deduction for Making Commercial Buildings Energy-Efficient Is Extended.
The new law extends the provision allowing deductions (instead of capitalization) for the cost of qualified energy-saving improvements to commercial buildings in the U.S. for five more years, to cover property placed in service through 2013. The maximum deduction under this provision is generally limited to $1.80 per square foot. In some circumstances, a reduced deduction of up to $.60 per square foot is allowed.
6. The Business and Personal Tax Credit for Alternative Fuel Vehicle Refueling Property Is Extended and Expanded.
The Emergency Economic Stabilization Act extends the tax credit for up to 30 percent of the cost of installing non-hydrogen alternative fuel vehicle refueling property for one more year, to cover property placed in service through 2010. The credit for hydrogen refueling property was not extended, because it's already allowed through 2014.
To illustrate, this credit can be claimed for a gas station's expenditures to install ethanol, compressed natural gas, or hydrogen refueling pumps (among other types of alternative fuel refueling equipment). An individual can claim a non-business credit based on 30 percent of the cost of installing such equipment at his or her principal residence. The new law adds electricity to the list of "clean burning fuels" for purposes of the credit. So the cost of installing equipment to recharge batteries in electric-powered cars will now qualify for the credit, effective for equipment placed in service after October 3, 2008.
Advisory: The annual per-location cap on this credit is $30,000 for business taxpayers, but it's only $1,000 for an individual's non-business refueling equipment installed at a principal residence.
7. The Contractor Tax Credit for Building Energy-Efficient Homes Is Extended.
The new law extends the $2,000 per-home contractor tax credit for building new energy-efficient homes in the U.S. (including manufactured homes) for one more year, through 2009. The credit can also be claimed for substantially reconstructing and rehabilitating an existing home and making it more energy-efficient.
Manufactured homes that don't fully meet the energy-efficiency standards may qualify for a reduced $1,000 credit. To qualify, a home must be sold by December 31, 2009 for use as a residence.
8. The Tax Credit for Manufacturing Energy-Efficient Appliances Is Extended and Modified.
The Act extends and modifies the credit for producing energy efficient dishwashers, clothes washers, and refrigerators in the U.S. for three more years, to cover appliances manufactured through 2010. For 2008 to 2010, the per-appliance credit amounts range between $45 and $250 depending on the year, the type of appliance, and the degree of energy efficiency.
9. New Employee Fringe Benefit for Bicycle Commuters.
The new law creates a new tax-free fringe benefit for employees who commute to work on bikes. This change is effective for tax years beginning in 2009 and beyond. Under the new provision, an employer can give employees tax-free reimbursements to cover reasonable expenses to buy, improve, repair, or store bicycles regularly used for commuting to work.
However, the tax-free reimbursements are limited to $20 for each month of bicycle commuting. So the maximum annual tax-free reimbursement is $240.
More Energy-Related Tax Provisions for Businesses
The new law also:
10. Designates "smart" electric meters and "smart" electric distribution grid systems as 10-year Modified Accelerated Cost Recovery System (MACRS) property for depreciation purposes, effective for property placed in service after October 3, 2008.
Interested in buying a hybrid vehicle, which might qualify for a federal tax credit, but you're unsure of whether you'll like the feel of an electric-gas car? Consider test driving one on your next business or pleasure trip. Rental car companies often have the vehicles available.
For example, in select locations, Hertz rents hybrids through its "Green Collection," including the Nissan Altima Hybrid. Enterprise, National and Alamo have about 4,000 hybrids in their system nationwide.
Plus, with Enterprise's "WeCar" program, you can rent hybrids and other fuel-efficient cars by the hour in busy metro areas. Many companies use the vehicles so their employees can carpool or take mass transit to work, and still have a car around to attend an off-site business meeting, visit customers or vendors, and attend to family emergencies.
11 Allows 50 percent first-year bonus depreciation for qualified reuse and recycling property purchased and placed in service after August 31, 2008.
12. Allows 50 percent first-year bonus depreciation for property used to produce any cellulosic bio fuel, effective for property placed in service after 10/3/08 through 2012. Previously, this break was only allowed for property used to produce cellulosic biomass ethanol.
13. Extends the per-kilowatt-hour tax credit for producing electricity from certain renewable resources and the per-ton credit for producing coal from refined coal and Indian coal facilities, to cover production from designated types of facilities placed in service in 2009 and 2010. In addition, the new law makes a number of technical changes that generally expand the availability of these credits. The changes have various effective dates.
14. Allocates an additional $1.25 billion for a new 30 percent credit for investing in advanced coal-based generation technology projects. This change is generally effective for the three-year period beginning on February 20, 2009. Certain technical changes are made to the rules for the existing credit for investing in advanced coal projects, effective after October 3, 2008.
15. Expands and modifies the credit for investing in coal gasification projects, effective after October 3, 2008.
16. Extends the gain-deferral privilege for gains from selling certain electric transmission assets to cover sales in 2008 and 2009 by qualifying electric utilities. It also makes technical changes to the gain-deferral rules.
17.Extends the income tax and excise tax credits for bio diesel and renewable diesel fuels for one more year. The credits for biodiesel fuels are doubled to $1 per gallon. Renewable diesel aviation fuel can qualify for the credits. Changes are made to the definitions of qualifying renewable diesel fuels. The extension and these modifications apply to fuels produced, sold, or used in 2009.
18. Removes income tax and excise tax credit incentives for alcohol, bio diesel, and renewable diesel fuels that are produced outside the U.S. for use outside the country, effective for claiming credits or payments made after May 14, 2008.
19. Extends the alternative fuel excise tax credit for one more year, to cover fuels sold or used through 2009. The list of qualifying fuels is expanded. Carbon dioxide capture is required for some fuels, effective for those sold or used after October 3, 2008.
20. Creates a new per-metric-ton income tax credit for capturing carbon dioxide from industrial facilities and then storing it in a secure geological formation or using it as a tertiary injectant in an enhanced oil and gas recovery project. The credit applies to carbon dioxide captured after October 3, 2008.