...for consumers making energy-efficient choices, tax season might help you keep a little extra cash in your wallet. In addition to lowering your energy bills at home and on the road, energy-efficient products eligible for the federal tax credits actually lower the amount of federal income taxes that you must pay Uncle Sam.
Author(s):
Kissairis MunozYou might be eligible for a federal income tax credit if…
- You’ve purchased fuel-efficient hybrid, electric or diesel vehicles
- You’ve made certain energy efficiency upgrades in your home
What is a tax credit?
You don’t receive an income tax credit when you buy the product, like an instant rebate. Instead, you claim the credit on your federal income tax form at the end of the year. The credit will increase the tax refund you receive or decrease the amount you owe the government.What’s the difference between a credit and a deduction?
A tax credit is more valuable than a tax deduction of the same amount. A tax credit reduces the tax you pay, dollar-for-dollar. Tax deductions — such as those for home mortgages and charitable giving — lower your taxable income.For instance, if you are in the highest 35% tax bracket, a tax credit will reduce your federal income tax by 100% of the credit amount. With a deduction, the income tax you pay is reduced by 35% of the deduction’s value.
What about other incentives?
In addition to the federal tax credits, consumers in some areas of the country also will be eligible for utility, state or local rebates and tax incentives for homes, vehicles and equipment. Check out the DSIRE database of state incentives or contact your state energy office or local utility.Which year's credits do I claim?
The credit value and technical criteria for the home improvement credits depend on when that improvement was installed. If you purchased a product in 2010, but didn't install it until 2011, the 2011 criteria apply.Where do I find these credits in the tax code?
- Vehicle credits: The hybrid, "lean-burn" diesel, and alternative fuel vehicle credits are part of the “alternative motor vehicle” credit in section 30B of the tax code. Electric vehicles are in section 30D, the "new qualified plug-in electric drive motor vehicles" credit.
- Home improvements credits: Formally called the “nonbusiness energy property” credit, it is in section 25C of the tax code
- Geothermal heat pump, solar equipment and fuel cells: Formally called the “residential energy efficient property” credit, they are in section 25D of the tax code.
Are there tax credits available to businesses?
A commercial building retrofit credit is available though, unlike the residential credits, it is based on whole-building performance levels. The good news is that businesses also can claim the vehicle tax credits.Businesses that build or manufacture certain other energy-efficient consumer products (see below) also are eligible for federal income tax credits. While these credits do not go directly to consumers, they could reduce the cost to consumers of:
- New energy-efficient homes through 2011 and
- Energy-efficient refrigerators, clothes washers and dishwashers through 2011.
