7 Energy Tax Credits that May be Expiring this April

7 Energy Tax Credits that May be Expiring this April

by LegalZoom Staff, December 2009

What do home improvements have in common with hybrid cars, solar energy systems, and fuels cells this tax season? All of them are tax credits and deductions associated with The Energy Policy Act of 2005. Think of them as tax credits and deductions with a green twist.

The good news is that there are four tax breaks that consumers (that's us regular folks) can take advantage of. The remaining three are for homebuilders, owners of commercial buildings, and manufacturers of energy efficient appliances, but indirectly affect consumers.

Yes, you heard that right. Energy efficient improvements to your home or that brand new hybrid car you bought last year may just help you get one step closer to landing a big fat refund this year. But you'd better hurry because some of these tax credits and deductions must be taken before April 15th, the official deadline for filing your 2007 taxes. Here's a closer look at what's expired, what hasn't, and what you can get credits and deductions for this year.

Say Goodbye to credits for Home Improvements

Listen up homeowners. This tax credit expired on December 31, 2007 so if you made any energy savings improvements to your home in 2007, now is the time to speak up. Upgrades that qualify include insulation that reduces heat loss or makes your home cooler, exterior windows including skylights and storm windows, certain types of qualifying water heaters, heat pumps, and air conditioners. If you made any of these home improvements to your home, check out IRS Form 5695 for the specifics.

Qualified Hybrid Cars to be Phased Out by 2010

In other words, some hybrid cars may qualify for the tax credit and some may not. And, while the tax credit has not expired per se, it will be phased out in the coming years. The rules are a little tricky so you need to pay attention to the IRS rules and depending on what car dealerships you hit this year you may have heard very different information. In a nutshell, starting January 1, 2006, each manufacturer received a credit for 15 months after selling their first 60,000 eligible vehicles. For example, Toyota™ hybrids only qualified for the tax credit up until October 1, 2007. Any Toyota Prius™ purchased after that no longer qualifies.

So, if you bought a Prius before that date, congratulations, you will be receiving the credit. For many other car manufacturers, credits may even extend past December 31, 2010. That means, if you are in the market for a hybrid vehicle, check with your dealership, you could still qualify well after this April's tax season. Keep in mind that taxpayers only qualify if they meet certain conditions as defined by the IRS.

Solar Energy Systems--It's Only a Matter of Time

Tax credits, for 30% of the cost of the system, up to a maximum of $2,000, are available for qualified solar water heaters (that provide 50% of the energy for hot water), solar panels, and photovoltaic systems that provide electricity for your home. The catch is that they must be placed into service between January 1, 2006 and December 31, 2008. So, while this tax credit hasn't expired yet, the countdown is on.

Fuel Cell Credit Bites the Dust

If you're a hardcore proponent of alternative energy you might have decided to install a fuel cell system or microturbine power plant to generate electricity for your home in the past couple of years. If so, you're in luck--provided the system was placed "in service" between January 1, 2006 and December 31, 2007 and it has a capacity of at least 0.5 kW. This is another tax credit that expired on December 31, 2007 and it's now a matter of use it...or lose it.

Homebuilders Have Until 2009 to Reap the Benefits


Homebuilders can breathe a sigh of relief because this tax credit, which applies to eligible contractor who constructs a qualified new energy efficient home (and substantially completed by 2005) located in the United States and purchased as a residential property between December 31, 2005 and January 1, 2009, was extended for yet another year. Manufactured homes also qualify provided they meet the requirements.

To qualify for the tax credit, the home must reduce heating and cooling energy consumption by 30 to 50 percent (depending on the type of home) when compared to homes built in accordance with the standards of the 2004 Supplement to the 2003 International Energy Conservation Code. The building envelope must have also undergone improvements to achieve heating and cooling levels that are 10% less than comparable homes.

Energy Saving Improvements to Commercial Buildings

Fear not proud owners of LEED certified commercial buildings, the government has not forgotten about you. Nor is it ignoring existing commercial buildings that have gone green by converting heating and cooling systems to more energy efficient ones.

Again, systems placed in service after January 1, 2006 qualify for the tax deduction as long as at least 50% of the heating and cooling energy of the building is saved and meets the standards for energy efficient design in new buildings. Partial deductions can also be taken for certain other building systems such as the building envelope and lighting. Better get busy though because you only have until December 31, 2008.

Energy Star Appliances are Going, Going, Gone

Manufacturers of energy efficient appliances that meet ENERGY STAR's 2007 specifications such as dishwashers and clothes washers also get a tax break when filing their 2007 taxes. In addition, manufacturers of refrigerators, as long as they exceed 2001 federal energy conservation standards, also qualify. This tax break also bit the dust as of December 31, 2007.

So for consumers and businesses alike, 2007 tax year may be the last chance you'll ever have to claim some of these credits and deductions. It's a win--win situation really, for you, the taxpayer, and the environment. Now get going with that paperwork!