American Recovery and
 Reinvestment Act of 2009
Part VI

Energy Tax Provisions

Nonbusiness homeowners energy credit extended to 2010 and modified.

Under pre-Act law, for property placed in service in 2009, a taxpayer could claim a life­time nonrefundable credit of up to $500 for making qualifying energy saving improvements to his home, but only $200 of this credit amount could be for quali­fying window expenditures. The expenses had to be made on or in connection with a dwelling unit located in the U.S., owned and used by the taxpayer as his prin­cipal residence, and originally placed in service by the taxpayer. The credit per improvement was:

(1) 10% of the cost of energy efficient building enve­lope components which meet criteria established by the 2000 International Energy Conservation Code. These consist of: insulation materials or systems that reduce heat loss/gain; exterior windows (including skylights); exterior doors; and certain metal roofs with pigmented coatings or asphalt roofs with cooling granules (which meet the Energy Star requirements) designed to reduce heat gain. The components must be expected to last for at least five years.

(2) Residential energy property expenses (including labor costs) for onsite preparation, assembly, or original instal­lation which meet specific standards in an amount up to:

... $300 for the cost of energy-efficient building prop­erty (electric heat pump water heater, electric heat

pump; central air conditioner; natural gas, propane or oil water heater; or a stove burning biomass fuel to heat or provide hot water to a taxpayer's residence in the U.S.) that meets specific energy efficiency standards).

... $150 for a natural gas, propane, or oil furnace or hot water boiler.

... $50 for an advanced main air circulating fan.

Under pre-Recovery Act law, an individual's expen­ditures from subsidized energy financing weren't taken into account for purposes of the credit.

New law. The Recovery Act extends the Code Sec. 25C nonbusiness energy tax credit for one year through Dec. 31, 2010. For tax years beginning after Dec. 31, 2008, for property placed in service before Jan. 1, 2011, the Recovery Act raises the 10% credit rate to 30%. All energy property otherwise eligible for the $50, $100, or $150 credits is instead eligible for a 30% credit on expenditures for the property.

In addition, the $500 lifetime cap (and the $200 life­time cap for windows) is eliminated and replaced with an aggregate cap of $1,500 for property placed in ser­vice after Dec. 31, 2008 and before Jan. 1, 2011.  Effective on Feb. 17, 2009, there are revised standards for energy efficient building property (electric heat pumps, central air conditioners and water heaters), oil furnaces and hot water boilers, and exteri­or windows, doors, and skylights. For tax years begin­ning after Dec. 31, 2008, a revised standard also applies for stoves using biomass fuels. For tax years beginning after Dec. 31, 2008, the limitation on subsidized energy financing is also eliminated.

Cap on residential energy efficient property credit is eliminated.

For property placed in service before 2017, an individual is allowed a 30% credit for the purchase of residential energy efficient property, such as qualified solar energy property (i.e., property that uses solar power to generate electricity in a home); and qualified fuel cell property, up to a maximum cred­it of $500 for each 0.5 kilowatt of capacity. Under pre­Act law, the credit was also allowed for:

... qualified solar water heating property, up to a maxi­mum credit of $2,000;

... qualified small wind energy property, up to $500 for each half kilowatt of capacity (not to exceed $4,000); and

... qualified geothermal heat pump property, up to $2,000.

Under pre-Act law, rules covered the treatment of joint occupants in allocating the credit taking these maximum limits into account for purposes of residen­tial energy efficient property credit.

Under pre-Act law, an individual's expenditures from subsidized energy financing weren't taken into account for purposes of the credit.

New law. For tax years beginning after Dec. 31, 2008, the Recovery Act eliminates the credit caps for solar hot water, geothermal, and wind property. The rules covering the treatment of joint occupants are revised to only apply to qualified fuel cell property. For tax years beginning after Dec. 31, 2008, the limitation on subsidized energy financing is also eliminated.

Plug-in electric motor vehicle credit is modified.

Under pre-Act law, for tax years beginning after 2008, a taxpayer could claim a credit under Code Sec. 30D for new qualified plug-in electric drive motor vehicles pur­chased before 2015. Subject to a limit based on weight, the amount of the credit was the sum of: (1) $2,500; plus (2) $417 for each kilowatt hour of traction battery capacity in excess of 6 kilowatt hours. The credit amount couldn't exceed the limit based on gross vehi­cle weight rating (GVWR), as follows: $7,500 for no more than 10,000 pounds; $10,000 for more than 10,000 pounds but no more than 14,000 pounds; $12,500 for more than 14,000 pounds but no more than 26,000 pounds; and $15,000 for more than 26,000 pounds.

Under pre-Act law, the credit (as computed above) phased out beginning in the second calendar quarter following that in which a manufacturer sells its 250,000th plug-in electric drive motor vehicle for use in the U.S. (50% credit reduction in second and third quarter; 75% in fourth and fifth quarter; 0 credit allowed thereafter).

New law. The Recovery Act creates two new elec­tric vehicle related credits and modifies the existing Code Sec. 30D new qualified plug-in electric drive motor vehicle credit.

Code Sec. 30 plug-in electric vehicle credit.

For vehicles bought after Feb. 17, 2009 and before Jan. 1, 2012, the Recovery Act creates a new 10% nonrefund­able personal credit for electric drive low-speed vehi­cles, motorcycles, and three-wheeled vehicles. The maximum credit for these vehicles is $2,500. The portion of the credit for such a vehicle that is attributable to property of a character subject to an allowance for depreciation is treated as part of the general business credit. For tax years to which Code Sec. 26(a)(2) doesn't apply, the nondepreciable property portion of the credit can't exceed: the excess of the sum of the taxpayer's AMT and regular tax liability, over the sum of the allowable credit provided by the foreign tax credit, and the allowable Subpart A credits (other than the adoption credit, the residential energy efficiency credit, and the Code Sec. 30 and Code Sec. 30D plug-in electric vehicle credits). Basis reduction and other rules apply. For a vehicle acquired after Feb. 17, 2009 and before Jan. 1, 2010, no Code Sec. 30 credit is allowed if a Code Sec. 30D credit is allowed for the vehicle.

Plug-in electric vehicle conversion credit.

For prop­erty placed in service after Feb. 17, 2009 and before Jan. 1, 2012, the Recovery Act also creates a new 10% credit, up to $4,000, for the cost of converting any motor vehicle into a Code Sec. 30D qualified plug-in electric drive motor vehicle. To be eligible for the credit, a qualified plug-in traction battery module must have a capacity of at least 4 kilowatt-hours. The plug-in conversion credit is added to the credits that are components of the alternate motor vehicle credit.

Code Sec. 30D new qualified plug-in electric drive motor vehicle credit.

For vehicles bought after Dec. 3 1, 2009, the Recovery Act provides that the amount of the Code Sec. 30D new qualified plug-in electric drive motor vehicle credit is the sum of: (1) $2,500; plus (2) $417, in the case of a vehicle that draws propulsion energy from a battery with not less than 5 kilowatt hours of capacity, plus $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The amount of the credit so computed is limited to $5,000. Among the requirements a qualifying vehicle must meet, it must be treated as a motor vehicle for purposes of title 11 of the Clean Air Act; it must have a gross vehi­cle weight rating of less than 14,000 pounds; and it must be propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of at least 4 kilowatt hours, and is capable of being recharged from an external source of electricity.

The Recovery Act also reduces the 250,000 vehicle limitation in the phaseout provision to 200,000. Thus, the credit phases out beginning in the second calendar quarter following that in which a manufacturer sells after 2009 its 200,000th plug-in electric drive motor vehicle for use in the U.S.  For tax years to which Code Sec. 26(a)(2) doesn't apply, the nondepreciable property portion of the credit can't exceed: the excess of the sum of the taxpayer's AMT and regular tax liability, over the sum of the allowable credit provided by the foreign tax credit, and the allowable Subpart A credits (other than the adoption credit, the residential energy efficiency credit, and the new qualified plug-in electric drive motor vehicle credit). Basis reduc­tion and other rules apply. The cred­it isn't available for low speed plug-in vehicles and for plug-in vehicles weighing 14,000 pounds or more. The credit, unlike under pre-Act law, isn't subject to a termination date.