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Tax Breaks for Energy Saving Can Provide Stimulus for Homeowners and Businesses

August 05, 2011

By John A. Lynch, MST, CPA
Partner
BlumShapiro

Federal tax laws provide some potential good news across the board in terms of lowering energy costs, as a number of key energy savings incentives exist for homeowners and businesses alike.

What follows is a brief overview of the key tax rules in this area and the potential savings that may occur.

Tax Breaks for Homeowners
Currently, there is a residential energy credit for up to10 percent of the cost of qualified energy saving improvements done to a home.  However, the time to act is right now.  A lifetime cap of $500 was reinstated by a tax law change last year, and the credit – which has been extended several times – is now scheduled to expire after 2011.

Previously, a maximum lifetime credit of $1,500 was allowed, spanning 2009 and 2010.  But homeowners who have already claimed a residential energy credit exceeding the $500 limit are not eligible for a credit in 2011.

The list of qualified energy saving expenses is expansive and includes the following:

  • Exterior windows and doors (including storm windows and skylights)
  • Air-conditioning systems
  • Qualified water heaters and furnaces
  • Hot water boilers
  • Metal and asphalt roofs
  • Stoves
  • Advanced main air-circulating fans
  • Insulation materials

Furthermore, homeowners may be able to claim credits for geothermal heat pumps, solar water heaters and fuel cells. Credits for these expenses are available through the end of 2016.

What’s more, a special credit may also now be claimed for plug-in electrical vehicles.  The credit amount is based on fuel capacity (subject to a phase-out once a manufacturer sells 200,000 units), and is available to both purchasers and lessees.  There is one caution, though – the credit for alternative fuel vehicles, including popular hybrid models, expired after 2010.

Tax Breaks for Business Owners
For those who own business buildings, a tax deduction may be available that is equal to $1.80 per square foot for energy systems placed in service after 2006 and before 2014.  A partial deduction of up to $.60 per square foot is available for improvements to the building envelope, lighting systems or heating and cooling systems.

To qualify for this deduction, the following conditions must be met:

  • The property must be installed as part of the interior lighting systems; the heating, cooling, ventilation or hot air systems; or the building envelope.
  • The property must otherwise be depreciable or amortizable.
  • The property must be installed on or in a building in the U.S. that meets strict standards of the American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE).
  • The property must be certified as part of an overall plan designed to reduce the total annual energy and power costs by 50 percent or more, in comparison with a reference building meeting the minimum requirements of the ASHRAE standards.

Additionally, there are other potential tax benefits for certain types of businesses, and owners should consult with professional advisers to examine them.

But the bottom line is there are opportunities for ample tax savings on homes and businesses that strive to be more energy efficient.  In challenging economic times such as these, people should be encouraged to examine these opportunities and others.  Every little bit of savings could help.

John A. Lynch, MST, CPA, is a partner at BlumShapiro,the largest regional accounting, tax and business consulting firm based in New England, with offices in West Hartford and Shelton, CT and Rockland, MA.  The firm serves as business advisors for today’s leading companies,  non-profit organizations and government entities, working to strategically tailor and consistently deliver tested solutions for unlocking an organization’s full potential.  For more information about BlumShapiro, visit blumshapiro.com.

 

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