Energy tax incentives should be considered within a taxpayer’s overall year-end tax strategy. ATRA extended a number of energy tax incentives, primarily business-related credits, but also some consumer oriented benefits. With sunset looming, taxpayers should weigh the value of these incentives, and take appropriate action before year-end.
Code Sec. 25C Nonbusiness Energy Property Credit
ATRA extended the Code Sec. 25C nonbusiness energy property credit through December 31, 2013. This nonrefundable credit is available for qualified energy efficiency improvements (building envelope components such as energy efficient doors and windows), and residential energy property expenditures (such as energy efficient heat pumps, furnaces, central air conditioning systems and water heaters). The lifetime aggregate amount of the credit that may be claimed by a taxpayer cannot exceed certain maximum amounts. Among them is an overall $500 lifetime limit for the credit, as well as a $200 cap for exterior windows and doors.
Proof that installation has occurred on or before January 1, 2014, is essential due to this credit’s sunset date. In addition, the qualified energy efficiency improvements and qualified energy property must be installed in or on a United States dwelling unit owned by the taxpayer and used as his or her principal residence. The property must originally be placed in service by the taxpayer, and there must be a reasonable expectation that the qualified energy efficiency improvements will remain in use for at least five years.
The Code Sec. 25D residential energy efficient property credit, by contrast, is not scheduled to expire after 2013. The Code Sec. 25D credit rewards taxpayers who make energy efficient improvements, such as installing small wind turbines and other qualified property before 2017.