The Phoenix Sun

A host of new tax credits are now available thanks to the American Recovery and Reinvestment Act (ARRA). The only drawback is that there are so many ways to reduce your tax bill by investing in energy efficiency and renewables, that it may be hard to keep track of them all.

While visiting Seaway Manufacturing Corporation in Erie, Pennsylvania today (they make energy efficient windows), Secretary of Energy Steven Chu reminded his audience that “Investing in energy efficiency is one of the quickest and most cost-effective ways reduce the energy bills in your home. We want to make sure that families that made those investments are taking advantage of the Recovery Act tax credits, which can put up to $1,500 into their pockets.”

Here are six tax credits that are often overlooked:

1.Residential Energy Property Credit (Section 1121)

The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.

The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.

A similar credit was available for 2007, but was not available in 2008. Homeowners should be aware that the standards in the new law are higher than the standards for the credit that was available in 2007 for products that qualify as “energy efficient” for purposes of this tax credit.

2. Residential Energy Efficient Property Credit (Section 1122)

This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. The new law removes some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property.

3. Plug-in Electric Drive Vehicle Credit (Section 1141)

The new law modifies the credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity. The full amount of the credit will be reduced with respect to a manufacturer’s vehicles after the manufacturer has sold at least 200,000 vehicles.

4. Plug-In Electric Vehicle Credit (Section 1142)

The new law also creates a special tax credit for two types of plug-in vehicles — certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012. To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable.

5. Conversion Kits (Section 1143)

The new law also provided a tax credit for plug-in electric drive conversion kits. The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle and placed in service after Feb. 17, 2009. The maximum amount of the credit is $4,000. The credit does not apply to conversions made after Dec. 31, 2011. A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.

6. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT (Section 1144)

Starting in 2009, the new law allows the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.

For more information, see the IRS FAQ page, here.

Now that I’ve got that “musing” out of my system (see Easter Sun Day, below), it’s back to the nitty-gritty.

While this post falls under the “Fine Print” series, it belongs to a subset known as “Find Print.” As in: “Where the hell is the dang “fine print”?!?!!!!

A simple question

Say you want to buy a solar electric system for your house. Let’s assume that you, like me and 99% of Americans, aren’t wealthy enough to be unconcerned about the cost.

With that in mind, here’s a simple, but important question:

Does the 30% federal tax credit apply to the total cost of the system, or only to what’s left over after subtracting all the other incentives?

A lot is riding on the answer. Including whether or not many people can afford to go solar.

On a 6 kW system in my own situation, the answer to this simple question makes a $6,000 difference to the bottom line, mostly because of an incentive by my power company, APS.

Down the rabbit hole

Getting an answer to the question isn’t difficult. In fact, I got many. The hard part is getting an answer that is also correct. Call me fussy.

The rep for one installation company read this blog and emailed:

Hi Osha, I was troubled by what seemed like some skewed numbers in your bids….WE ARE NOT TAX EXPERTS, but our contacts in the industry are telling us to take the conservative approach and apply the 30% Federal Investment Tax Credit to the net cost AFTER the utility rebate and state tax credits are applied.” [Emphasis in the original]

I emailed the rep for a different firm and got this information back:

Confirmed by APS legal eagles this week that the 30% tax credit is in fact 30% of the system cost. We are seeing “out of pocket” at the “end of the day” – costs of 25% of the project cost – now, there’s an investment for ya!

Absolutely. But is that correct?

Yes!

or No!

Um, depends on who you ask.

I try the solar help-line at APS.

“The tax credit applies to the total cost of the system,” I’m assured. “It just makes sense. It wouldn’t be much of an incentive if it wasn’t done that way.”

Sounds good to me. Another vote, “yes.”

Democracy, we can all agree, is a wonderful thing. But voting has never been a particularly good method of determining whether a fact is true or false.

I call the Department of Energy. The representative there says that the federal tax credit is taken after subtracting all other incentives.

Uh-oh. A “no” vote.

She refers me to a website run by the Tax Incentive Assistance Project (TIAP) and directs my attention to a section heading that seems relevant.

How do the federal tax incentives interact with credits or rebates provided by my state or utility?

Very relevant.

And here’s the answer they supply:

For federal credits that depend on the cost of a measure…the federal credit will generally be calculated after deducting the value of utility or state incentives.

The site is a public/non-profit partnership, the DOE rep tells me, which makes me think its information is probably accurate.

Of course, my inner-lawyer jumps all over the word “generally.” I seize the ambiguity introduced by that word and think up scenarios in which something unique to my particular situation allows me to dismiss this standard as inapplicable or quaint. (Maybe I can get Jay Bybee or John Yoo to write me a memo to that effect.)

Ah, self-deception — more powerful that solar energy, but twice as ephemeral.

Probably, we, I, will have to take the federal subsidy after subtracting state and utility incentives.

Sigh. Sometimes fine print, like a golf green at Augusta, breaks in your favor. Sometimes it doesn’t.

You probably shouldn’t take my word for it. I haven’t played golf since I was a kid and even then I sucked.

Investigative reporting involves very little glamor, movies like State of Play notwithstanding. (Although, I’ve been told that I don’t look much like Russell Crowe and that may have something to do with my non-glamorous lifestyle.) The only story I did that went viral in the blogosphere (so far) was a piece I wrote for Rolling Stone magazine involving a tiny item tucked away in the fine print of the Bush administration’s 2006 budget proposal.

The devil, as they say, is in the details.

But so are the angels.

The American Recovery and Reinvestment Act of 2009 is a perfect example of how good is as likely as bad to get enmeshed in fine print.

Here are two little known provisions that can help anyone trying to go solar.

1. Most solar enthusiasts and wannabes probably know that you can get a 30% tax credit on the cost of installing a solar electric system. Most probably know that there is no official cap on the size of the system. And even with an average-sized one, the 30% tax credit can be larger than your federal tax bill.

So, what do you do, aside from crying into your beer (make mine a Corona, please) about the hundreds or thousands of dollars in tax credits that you couldn’t use?

Buck up! Don’t cry. You can apply the unused portion of your tax credit to the next year’s tax bill! Yee-haw!

2. Solar produced electricity has one thing in common with electricity made by a coal-fired power plant: the cheapest and most environmentally friendly form is the stuff you don’t use in the first place. Here in the desert, a roof that reflects sunlight rather than absorbing it radically reduces the amount of electricity needed to cool down your living space. That’s because it’s, um, well, cooler to begin with, so… Ok, so that part’s obvious.

Our roof could probably qualify for its own AARP card, so we were thinking of replacing it before installing the solar Array. Energy efficient shingles are more expensive though, so we were trying to figure out what to do. Luckily, there’s also a “residential energy efficiency tax credit” provision in the new law.

We can take an additional 30% tax credit on the cost of installing an energy efficient roof. This credit maxes out at $1,500. Still, that’s an incentive to get the job done.

I’ll keep posting these buried incentives as I find them. If you, dear readers, find others, please share them in a comment or Email them to me and I’ll post them.