Tax Credits-Energy Efficiency Home and Vehicle

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The energy efficiency income tax credits available for 2009 and 2010 differ from those available for improvements made in 2011. If you made energy efficiency improvements to your home or purchased an eligible efficient vehicle in 2010, you may claim those credits on your 2010 tax return, using the 2010 criteria. For home efficiency improvements made on or after Jan. 1, 2011, new criteria and credit values apply. Tax credits for efficient gasoline hybrid and diesel vehicles vary by manufacturer, but all expired at the end of 2010.  Credits continue for new plug-in hybrid and electric vehicles.

Please note: We at the Alliance to Save Energy (and Scotts Contracting) are experts on energy efficiency, not taxes, and we do not provide tax advice; you may want to consult a tax professional.

  1. Introduction to Tax Credits
  2. Home Energy Efficiency Tax Credits (2009-2010)
  3. Home Energy Efficiency Tax Credits (2011)
  4. Hybrid, Diesel, and Natural Gas Vehicle Tax Credits (2010 and earlier)
  5. Electric Vehicle Tax Credits (2010 onwards)
  6. Geothermal Heat Pumps, Renewable Energy, and Fuel Cells (through 2016)


1. Introduction to Tax Credits

This document provides details on valuable federal income tax credits for consumers who purchase fuel-efficient hybrid, electric or diesel vehicles and who make certain specified energy efficiency upgrades to their homes. The home improvement credits started in 2006, expired for 2008, were changed extensively in the February 2009 Recovery Act, then largely returned to their original form for 2011 in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.  The vehicle credits also started in 2006 and expired at the end of 2010 except for newer credits for plug-in hybrid and electric cars and light trucks.

Consumers who employ energy-efficient products in their homes or drive fuel-efficient vehicles enjoy multiple benefits. At home, these benefits include lower home energy bills, increased indoor comfort, and reduced air pollution. On the road, consumers will increase their gas mileage so they lower their gasoline costs, and they will dramatically reduce the amount of air pollution from their vehicles.

In addition to helping savvy consumers lower their energy bills at home and on the road, the energy-efficient products eligible for the new federal tax credits actually lower the amount of federal income taxes that these taxpayers must pay Uncle Sam.

  • What is a tax credit? You don’t receive an income tax credit when you buy the product, like an instant rebate. You claim the credit on your federal income tax form at the end of the year. The credit then increases the tax refund you receive or decreases the amount you have to pay.
  • Tax credits vs. tax deductions: In general, 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. If you are in the highest 35-percent tax bracket, the income tax you pay is reduced by 35 percent of the value of a tax deduction. But a tax credit reduces your federal income tax by 100 percent of the amount of the credit.
  • 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. For information on these incentives, see 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.

A tax extenders bill passed by Congress in December 2010 – most widely known for its extension of the “Bush-era tax cuts,” unemployment insurance, and estate tax provisions – also included a number of provisions that extended and altered tax credits for energy efficiency, including the popular “Non-Business Energy Property” credit for home energy efficiency retrofits. This extension returned the credits to a form similar to that which existed in 2006 and 2007 with lower values than was the case for 2009 and 2010 when the credits were renewed and altered by the American Recovery and Reinvestment Act of 2009 (ARRA) and Emergency Economic Stabilization Act of 2008 (EESA).
A brief history of the home improvement, ‘non-business energy property,’ tax credit:

Tax credits for hybrid, “lean-burn” diesel, and alternative fuel vehicles also expired at the end of 2010, but credits for plug-in electric vehicles are still available. Credits for geothermal heatpumps, residential renewable energy projects, and fuel cells also remain available for 2011 and beyond.
Tax Code Sections

  • The home improvements credit (formally called the “nonbusiness energy property” credit) is in section 25C of the tax code.
  • 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 30D, the “new qualified plug-in electric drive motor vehicles” credit.
  • The new geothermal heat pump credit, along with the credits for solar equipment and fuel cells, are called the “residential energy efficient property” credit and are in section 25D of the tax code.

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.

Businesses 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;
  • Energy-efficient refrigerators, clothes washers and dishwashers through 2011.

Additional tax credit information (for businesses, builders, manufacturers and more) is available at the Tax Incentives Assistance Project (TIAP) web site.


2. Home Energy Efficiency Tax Credits for 2009 and 2010

For improvements made in 2009 and 2010, you can get an income tax credit of up to $1,500 for installing efficient new windows, insulation, doors, roofs, and heating and cooling equipment in your home. However, efficiency criteria will vary dependant on when these items are “placed in service” (installed).
The American Recovery and Reinvestment Act of 2009 (ARRA) extended and expanded the federal income tax credits for homeowners. The law extended the consumer tax benefits through 2010; tripled the total available tax credit from $500 to $1,500; and increased the tax credit to 30 percent of the cost of each qualified energy efficiency improvement. These home retrofit credits expired at the end of 2010; different criteria and values apply for 2011.

Who gets it? Individuals who install specific energy-efficient home improvements.

What energy-efficient home improvements are eligible? The overall $1,500 cap can be reached in several ways with the purchase and installation of energy-efficient products that meet certain efficiency criteria:

  • Exterior windows: Includes skylights and storm windows.
  • Insulation, exterior doors, or roofs: Includes seals to limit air infiltration, such as caulk, weather stripping and foam sealants, as well as storm doors.
  • Central air conditioner, heat pump, furnace, boiler, water heater, or biomass (e.g. corn) stove: Starting in 2009, geothermal heat pumps are instead eligible for a separate tax credit
    see Section 6 below.

The chart below summarizes the criteria for different products and their effective dates. Individuals can also search for qualifying heating and cooling products on the Consortium for Energy Efficiency’s website.
In addition, to be eligible for the federal tax credits:

  • Windows, doors, insulation, and roofs must be expected to last at least five years (a two-year warranty is sufficient to demonstrate this).
  • Manufacturers can certify (in packaging or on the company’s web site) which of their products qualify for the tax credit. Retailers, contractors, and manufacturers should be able to help you determine what levels of insulation and what other products qualify.
  • All the improvements must be installed in or on the taxpayer’s principal residence in the United States. Condo and co-op improvements are apportioned to the owners proportionally.

A ‘patch’ to the Alternative Minimum Tax for tax year 2008 and 2009 allowed this credit to be claimed by those paying the AMT, and another did so for 2010.

How much is the credit? The tax credit amount is now 30 percent of the cost of the measures, including installation costs for heating and cooling equipment, but only product costs for windows, insulation, and other parts of the building “shell.” There is a cap on the credit amount of $1,500 for fiscal years 2009 and 2010 combined; thus the credit applies to up to $5,000 in total costs.

When is it available? The home improvements tax credit applies for improvements “placed in service” from Jan. 1, 2009, through Dec. 31, 2010. However, modifications to the criteria were made on products placed in service after Feb. 17, 2009, the date of ARRA passage: products installed through Feb. 16, 2009 are subject to the older criteria, but from Feb. 17 onward the new stricter criteria apply – except for exterior windows and skylights. The IRS defines “placed in service” as when the products or materials are ready and available for use – this would generally refer to the installation, not the purchase.
Exterior windows and skylights placed in service from Jan. 1 through May 31, 2009 require only existing manufacturer certifications and ENERGY STAR labels, as updates to criteria based on ARRA were not yet available during that timeframe. From June 1, 2009 onwards, the new, more stringent criteria apply. For more information on the June 1, 2009 window and skylight issue, see the IRS guidance and press release.

The credits were not available in 2008, but an earlier credit, with different criteria and credit amounts, was available in 2006 and 2007 (credits claimed in these past years do not count toward the $1,500 cap).

What do I need to do to get the tax credit? You will need to file IRS Form 5695 with your taxes. In addition, you will need to keep at least receipts proving that you purchased the improvements and a copy of the manufacturer’s certification. Accountants and tax advisors should also be able to provide more guidance.

Guidance for Nonbusiness Energy Property Credit: IRS Notice 2009-53, issued June 1, 2009, provides guidance regarding “nonbusiness energy property,” superseding previous IRS guidance in light of recent changes to the credits. It also clarifies some regulations related to items eligible for the credit and manufacturers’ certification of eligible products. This notice also includes transition rules to provide taxpayers with guidance concerning the interaction of the effective date and timing provisions of the Energy Policy Act, the Energy Improvement and Extension Act, and the American Recovery and Reinvestment Act. The publication of this notice provides specific information that taxpayers and manufacturers can rely upon in claiming the credit or certifying eligible products.
For property placed into service before Jan. 1, 2008, the original IRS guidance applies:

Criteria for heating and cooling equipment, 2009-2010

In order to be eligible for the tax credit, heating and cooling equipment must meet specified measures of energy efficiency. Individuals can search for qualifying products on the Consortium for Energy Efficiency’s web site.
Product Placed in Service between
Jan. 1, 2009 and Feb. 17, 2009
Placed in Service between
Feb. 18, 2009 and Dec. 31, 2010
Notes
Exterior Windows (includes skylights and storm windows) and doors
  • Must meet the requirements for your region of the 2001 or 2004 International Energy Conservation Code, a model energy code for buildings. All ENERGY STAR windows qualify.
  • Must meet the requirements for your region of the 2001 or 2004 International Energy Conservation Code, a model energy code for buildings.
  • Must be equal to or below a U factor of .30 and SHGC of .30.
Only some ENERGY STAR windows will qualify; however, for exterior windows and skylights purchased before June 1, 2009, the IRS and U.S. Treasury announced grace period during which existing manufacturer certifications and ENERGY STAR labels will be accepted. From June 1, 2009 onward, the new, more stringent, criteria apply. See the IRS guidance and press release.
Insulation and roofs
  • Insulation must meet the 2001 or 2004 International Energy Conservation Code.
  • Roofs must be metal roofs with pigmented coatings or asphalt roofs with cooling granules that meet ENERGY STAR requirements.
  • Insulation must meet the 2009 International Energy Conservation Code.
  • Roofs must be metal roofs with pigmented coatings or asphalt roofs with cooling granules that meet ENERGY STAR requirements.
Required insulation levels will vary by region and will include insulation that is already installed in your home.
Central AC and heat pumps
  • Central AC must meet the highest efficiency tier set by the Consortium for Energy Efficiency for 2006: a seasonal energy efficiency ratio (SEER) of at least 15 and an energy efficiency ratio (EER) of at least 12.5 for most air conditioners.
  • Electric heat pumps must be SEER of at least 15 and an EER of at least 13 and must have a heating seasonal performance factor (HSPF) of at least 9.
  • Central AC must meet the highest efficiency tier set by the Consortium for Energy Efficiency for 2009: a SEER of at least 16 and an EER of at least 13 for most air conditioners.
  • Electric heat pumps must meet the highest efficiency tier set by the Consortium for Energy Efficiency for 2009: a SEER of at least 15, an EER of at least 12.5 and an HSPF of at least 8.5.
This is about 15-25 percent more efficient than the federal standard that went into effect in January 2006.
Furnaces and Boilers
  • Natural gas, propane, or oil furnaces and boilers must have at least a 95 percent annual fuel utilization efficiency (AFUE).
  • Natural gas or propane furnaces must have at least a 95 percent AFUE.
  • Oil furnaces must have at least a 90 percent AFUE.
  • Natural gas, propane, or oil boilers must have at least a 90 percent AFUE.
Water heaters
  • Electric heat pump water heaters must have an Energy Factor (EF) of 2.0.
  • Natural gas, propane, or oil water heaters must have an EF of at least .80 or a thermal efficiency rating of at least 90 percent.
  • Electric heat pump water heaters must have an EF of 2.0.
  • Natural gas, propane, or oil water heaters must have an EF of at least .82 or a thermal efficiency rating of at least 90 percent.
  • This is more than twice as efficient as the current federal standard. There is no credit for other kinds of electric water heaters.
  • Only some tankless water heaters and “condensing” or other advanced water heaters currently reach this efficiency level.
Biomass stoves
  • Biomass stoves for space or water heating can run on crops, wood, plants, etc., but must have a thermal efficiency rating of at least 75 percent.
  • Biomass stoves for space or water heating can run on crops, wood, plants, etc., but must have a thermal efficiency rating using a lower heating value of at least 75 percent.

3. Home Energy Efficiency Tax Credits for 2011

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the nonbusiness energy property tax credit, section 25C in the tax code, by one year. It also largely reverted it to the structure as it existed prior to the 2009 American Recovery and Reinvestment Act (ARRA), with some tighter requirements for improvements to qualify. This new credit structure applies to improvements made in 2011; those made in 2010 are still subject to the old credit’s requirements and values.
Beginning in 2011, there will be differing credit values for different types of energy efficiency improvements. Some of the technical criteria for eligibility are also changed.

Who gets it? Individuals who install specific energy-efficient home improvements.

What energy-efficient home improvements are eligible? The overall $500 cap can be reached in several ways with the purchase and installation of energy-efficient products that meet certain efficiency criteria:

  • Exterior windows: Includes skylights and storm windows.
  • Insulation, exterior doors or roofs: Includes seals to limit air infiltration, such as caulk, weather stripping and foam sealants, as well as storm doors.
  • Central air conditioner, heat pump, furnace, boiler, water heater or biomass (e.g. corn) stove: A separate credit applies for geothermal heatpump systems.

In addition, to be eligible for the federal tax credits:

  • Windows, doors, insulation and roofs must be expected to last at least five years (a two-year warranty is sufficient to demonstrate this).
  • Manufacturers can certify (in packaging or on the company’s website) which of their products qualify for the tax credit. Retailers, contractors and manufacturers should be able to help you determine what levels of insulation and what other products qualify.
  • All the improvements must be installed in or on the taxpayer’s principal residence in the United States. Condo and co-op improvements are apportioned to the owners proportionally.

How much is the credit? The tax credit amount is now 10 percent of the cost of building envelope improvements, excluding labor costs and limited to $200 for windows, and specific dollar limits for heating and cooling equipment. There is a cap on the credit amount of $500 for fiscal years 2006 through 2011 combined; if you have ever claimed this credit in the past, it counts against the $500 limit (but does not affect the $1500 limit available for 2009 and 2010). So, for example, if you claimed $300 in 2007, you can only claim $200 in 2011; if you claimed $800 in 2009, you cannot claim any more credit.

When is it available? The home improvements tax credit applies for improvements “placed in service” from Jan. 1, 2011, through Dec. 31, 2011. The IRS defines “placed in service” as when the products or materials are ready and available for use – this would essentially always refer to the installation, not the purchase.

What do I need to do to get the tax credit? You will need to file IRS Form 5695 (not yet available for the 2011 tax year) with your taxes. In addition, you will need to keep at least receipts proving that you purchased the improvements and a copy of the manufacturer’s certification. Accountants and tax advisors should also be able to provide more guidance.

IRS guidance on the credits for 2011 should be forthcoming. It will presumably substantially mirror guidance provided for the 2006 and 2007 credit, although some of the eligibility criteria have changed:

Credit values and requirements for 2011:
Changes from 2010 are in italics.

  • The total credit cannot exceed $500, must be installed on a taxpayer’s principal residence in the United States, and be reasonably expected to last at least five years. The $500 limit applies to cumulative claims for this credit dating back to 2006.
  • For advanced air circulating fans, boilers, water heaters, heat pumps, air conditioners, and biomass stoves, the credit values listed are technically 100 percent of costs, including labor, up to that value, but in practice any of these improvements can be expected to earn this maximum value.
Value of Credit Eligibility Criteria
Insulation or insulating material 10% of cost. Meets the criteria required by the 2009 International Energy Conservation Code.
Exterior window or skylight 10% of cost, up to $200. Meets ENERGY STAR requirements.
Exterior door 10% of cost Meets ENERGY STAR requirements.
Metal roof with pigmented coating, or asphalt roof with cooling granules 10% of cost Meets ENERGY STAR requirements.
Advanced main air circulating fan $50 Electricity use of no more than 2% of total energy used by the furnace.
Natural gas, propane, or oil furnace or hot water boiler $150 Annual fuel utilization efficiency (AFUE) rate not less than 95.
Electric heat pump water heater $300 Energy factor of at least 2.0.
Electric heat pump $300 Meets the highest efficiency tier set by the Consortium for Energy Efficiency for 2009: SEER of at least 15, an EER of at least 12.5, and an HSPF of at least 8.5.
Central air conditioner $300 Meets the highest efficiency tier set by the Consortium for Energy Efficiency for 2009: SEER of at least 16 and an EER of at least 13 for most air conditioners.
Natural gas, propane, or oil water heater $300 Energy factor of at least .82 or a thermal efficiency rating of at least 90%.
Biomass stove $300 Thermal efficiency rating of at least 75%.
Heats a dwelling or water for use in a dwelling.
Fueled by plant-derived fuel.


4. Hybrid, Diesel and Natural Gas Vehicle Tax Credits

Prior to 2011, you could get an income tax credit of $250 – $3,400 for buying or leasing a new hybrid gas-electric, diesel, or natural gas automobile. When it comes time to replace your old, fuel-inefficient vehicle for a new efficient or low-emissions vehicle, please consider converting your old vehicle into a tax-deductible donation to the Alliance. Through our vehicle recycle service, we ensure that your old, fuel-inefficient vehicle will be permanently and responsibly taken off the roads through proper scrapping and recycling.

  • Who gets it? Individuals and businesses that buy a new hybrid or diesel car or truck. If a tax-exempt organization buys such a vehicle, the retailer may take the credit. For leased vehicles, the lesser may claim the credit.
  • What vehicles qualify? Hybrid vehicles that use less gasoline than the average vehicle of similar weight and that meet an emissions standard. “Lean-burn” diesel vehicles also qualify, but only a few diesel vehicles meet the emissions standard (see below). There is a similar credit for plug-in hybrid or pure electric vehicles (which you can power by plugging them into a wall socket) and fuel-cell vehicles. The vehicle must be in the United States and purchased before Jan. 1, 2011.
  • How much is the credit? The tax credit for a hybrid or clean-diesel vehicle could range from $250 to $3,400 depending on the fuel economy and the weight. Vehicles running compressed natural gas can earn you a $4,000 credit and the credit for electric vehicles can reach up to $7,500. If you buy more than one eligible vehicle, you can get a tax credit for each vehicle.

A. Hybrid Vehicles

So far the following hybrid vehicles and credit amounts have been officially certified:

Vehicle Make & Model Full Credit Effective 50% Effective 25% Effective No Credit Effective
BMW Jan. 1, 2006 TBD TBD Jan. 1, 2011
2010 – 2011 ActiveHybrid X6 $1,550 $0
2011 ActiveHybrid 750i and 750Li $900  —  — $0
Chrysler and Dodge Jan. 1, 2006 TBD TBD Jan. 1, 2011
2009 Chrysler Aspen and Dodge Durango Hybrids $2,200 $0
Ford Motor Company Jan. 1, 2006 –
Mar. 31, 2009
Apr. 1 –
Sep. 30, 2009
Oct. 1 2009 –
Mar. 31, 2010
Apr. 1, 2010
2010 Ford Fusion and Mercury Milan Hybrids** $3,400 $1,700 $850 $0
2010 Ford Escape and Mercury Mariner Hybrids 2WD $3,000 $1,500 $750 $0
4WD $2,600 $1,300 $650 $0
2009 Ford Escape and Mercury Mariner Hybrid 2WD $3,000 $1,500 $750 $0
4WD $1,950 $975 $487.50 $0
2008 Ford Escape, Mercury Mariner Hybrid 2WD $3,000 $1,500 $750 $0
4WD $2,200 $1,100 $550 $0
2005 – 2007 Ford Escape Hybrid 2WD $2,600 $1,300 $650 $0
4WD $1,950 $975 $487.50 $0
2006 – 2007 Mercury Mariner Hybrid 4WD $1,950 $975 $487.50 $0
General Motors Jan. 1, 2006 TBD TBD Jan. 1, 2011
2010 Chevrolet Malibu Hybrid $1,550 $0
2009 Chevrolet Malibu Hybrid $1,500 $0
2008 Chevrolet Malibu Hybrid $1,300 $0
2008 – 2011 Chevrolet Tahoe, GMC Yukon 1500, & GMC Yukon Denali Hybrid (C1500 2WD & K1500 4WD) $2,200 $0
2008 – 09 Saturn Vue / Vue Green Line $1,550 $0
2007 Saturn Vue Green Line $650 $0
2009 Saturn Aura Green Line $1,500 $0
2007 – 2008 Saturn Aura Green Line $1,300 $0
2006 – 2007 Chevrolet Silverado and GMC Sierra Hybrid 2WD $250 $0
4WD $650 $0
2009 – 2011 Chevrolet Silverado and GMC Sierra Hybrid (C15 2WD & K15 4WD) $2,200 $0
2009 Cadillac Escalade Hybrid 2WD $2,200 $0
4WD $1,800 $0
2010 – 2011 Cadillac Escalade Hybrid (2WD & 4WD) $2,200 $0
Honda Jan 1, 2006 –
Dec 31, 2007
Jan. 1 –
Jun. 30, 2008
July 1 –
Dec. 31, 2008
Jan. 1, 2009
2006 – 2009 Civic Hybrid CVT $2,100 $1,050 $525 $0
2006 – 2007 Accord Hybrid AT & Navi AT* (2006 w/ updated control calibration) $1,300 $650 $325 $0
2006 Accord Hybrid AT & Navi AT* (w/o updated control calibration) $650 $325 $162.50 $0
2005 – 2006 Insight CVT* $1,450 $725 $362.50 $0
2005 Accord Hybrid AT & Navi AT* $650 $325 $162.50 $0
2005 Civic Hybrid (SULEV) MT & CVT* $1,700 $850 $425 $0
Mazda Jan. 1, 2006 TBD TBD Jan. 1, 2011
2009 Mazda Tribute Hybrid 2WD $3,000 $0
4WD $1,950 $0
2008 Mazda Tribute Hybrid 2WD $3,000 $0
4WD $2,200 $0
Mercedes Jan. 1, 2006 TBD TBD Jan. 1, 2011
2010 S 400 Hybrid $1,150 $0
2010 – 2011 ML 450 Hybrid $2,200 $0
Nissan Jan. 1, 2006 TBD TBD Jan. 1, 2011
2007 – 2011 Altima Hybrid $2,350 $0
Toyota Jan. 1 –
Sep. 30, 2006
Oct. 1, 2006 –
Mar. 31, 2007
Apr. 1 –
Sep. 30, 2007
Oct. 1, 2007
2005 – 2008 Prius $3,150 $1,575 $787.50 $0
2007 – 2008 Camry Hybrid $2,600 $1,300 $650 $0
2006 – 2008 Highlander Hybrid (2WD & 4WD) $2,600 $1,300 $650 $0
2006 – 2008 Lexus RX400h (2WD & 4WD) $2,200 $1,100 $550 $0
2008 Lexus LS 600h $450 $0
2007 Lexus GS 450h $1,550 $775 $387.50 $0
* Honda Hybrid AT = automatic transmission; CVT = continuously variable transmission; MT = manual transmission; SULEV = Super Ultra Low Emission Vehicle emissions rating.
** The Ford Fusion and Mercury Milan hybrid models were not widely commercially available until after the 50% phase-out reduction date. It is not certain whether a pre-order of a vehicle would qualify as a ‘purchase’ under IRS regulations.

Source: IRS. Updated November 19, 2010. The list of eligible vehicles is available at FuelEconomy.gov. Certain heavy hybrid vehicles, for commercial purposes, are also eligible for tax credits through the end of 2010. The IRS maintains a list of such qualified vehicles.

You can check for updates on eligible vehicles at the IRS website. The actual formulae for calculating the credits is available in an appendix to this page. Manufacturers should certify to buyers of a qualifying vehicle the amount of the credit for that vehicle. Also, companies that buy heavy-duty hybrid trucks could get a larger tax credit prior to 2010.

When is it available? The tax credit is for vehicles “placed in service” after Dec. 31, 2006 and purchased on or before Dec. 31, 2010. The vehicle tax credit is phased out for each manufacturer once that company has sold 60,000 eligible vehicles. At that point, the tax credit for that company’s vehicles gradually decline over the course of another year. The phase-out schedule is available in an appendix to this page.

What do I need to do to get the vehicle tax credit? You will need to file IRS Form 8910 with your taxes. In addition, you will need the certification from the manufacturer and need to keep at least receipts proving that you purchased an eligible vehicle. Taxpayer qualification requirements are available from the IRS web site. Accountants and tax advisors should also be able to provide more guidance. Very detailed information on the tax credit is available in the IRS partial interim guidance for hybrid vehicle tax credit .

Wasn’t there a tax incentive for hybrid vehicles purchased in 2005? Yes, there was a $2,000 tax deduction for hybrid vehicles through the end of 2005.

Are there any other tax incentives available? Some state and local governments also provide incentives for hybrids. To see if you are eligible for a state or local government tax credit, you can view the U.S. Department of Energy’s list of State & Federal Incentives & Laws or the DSIRE database of state incentives.

B. Efficient Diesel Vehicles

Certain “lean-burn” diesel vehicles also are eligible for the tax credit.

Vehicle Make & Model Full Credit Effective 50% Effective 25% Effective No Credit Effective
Audi Jan. 1, 2006 July 1, 2010
n/a Jan. 1, 2011
2009-10 Q7 3.0L TDI $1,150 $575 $0
2010 A3 2.0L TDI Automatic $1,300 $650 $0
BMW Jan. 1, 2006 TBD TBD Jan. 1, 2011
2009 – 2011 335d Sedan $900 $0
2009 – 2011 X5 xDrive35d Sports Activity Vehicle $1,800 $0
Mercedes Jan. 1, 2006 TBD TBD Jan. 1, 2011
2009 GL320 BlueTEC $1,800 $0
2009 ML320 BlueTEC $900 $0
2009 R320 BlueTEC $1,550 $0
2010 – 2011 GL350 BlueTEC $1,800 $0
2010 – 2011 ML350 BlueTEC $900 $0
2010 – 2011 R350 BlueTEC $1,550 $0
2011 E350 BlueTEC $1,550 $0
Volkswagen Jan. 1, 2006 July 1, 2010 n/a Jan. 1, 2011
2009-10 Jetta 2.0L TDI Sedan or SportWagen (manual and automatic) $1,300 $650 $0
2009-10 Touareg 3.0L TDI $1,150 $575 $0
2010 Golf 2.0L TDI 2-door & 4-door manual $1,300 $650 $0
2010 Golf 2.0L TDI 2-door & 4-door automatic $1,700 $850 $0

Source: IRS, Updated December 16, 2010.

C. Natural Gas Vehicle

Alternative Fuel Vehicles (AFV’s) are eligible for a federal income tax credit of up to $4,000. To be eligible for this tax credit, the vehicle must only be capable of operating on any of the following alternative fuels: compressed natural gas (CNG), liquefied natural gas (LNG), liquefied petroleum gas (LPG), hydrogen, and any liquid at least 85 percent methanol by volume. This credit expires at the end of 2010. The only stock passenger AFV car certified so far is the CNG model Honda Civic:

Vehicle Make & Model Fuel Credit Amount
2005 – 2011 Honda Civic GX CNG $4,000

Source: IRS, updated October 5, 2010.


5. Electric Vehicle Tax Credits

Highway-capable battery-powered plug-in vehicles purchased or leased new may be available for a credit of up to $7,500, based on their battery capacity. Use IRS form 8834 for residential EVs and form 3800 for business use. A similar credit was available for EVs purchased in 2009. This credit begins to phase out for a given manufacturer once that manufacturer has sold 200,000 qualifying vehicles in the United States.
Further information about tax credits for electric vehicles is available at FuelEconomy.gov and from the IRS.

Vehicle Make & Model Credit Amount
2008 – 2010 Tesla Roadster $7,500
2010 CODA Sedan $7,500
2011 Nissan Leaf $7,500
2011 Chevrolet Volt $7,500
2011 Wheego LiFe EV $7,500

Source: IRS, updated November 3, 2010

 A smaller credit of up to $2,500 for certain “low-speed” neighborhood electric vehicles (including two- and three-wheeled vehicles) is available through 2011. A credit also exists for conversion of vehicles to plug-in hybrid vehicles; it is worth 10 percent of costs up to $40,000 and is available through 2011.


6. Geothermal Heat Pumps, Renewable Energy and Fuel Cells

Tax credits are available for geothermal heat pumps solar photovoltaic cells, solar water heaters, and fuel cells, also modified starting in 2009. These credits are available through the end of 2016.

Geothermal (or ground-source) heat pumps placed in service starting in 2009 are now eligible for a tax credit for 30 percent of the cost, with no maximum. These credits are effective through December 31, 2016. In order to be eligible for the tax credit, geothermal heat pumps must meet ENERGY STAR criteria. Currently, the criteria for ENERGY STAR geothermal heat pumps are:

  • For a closed-loop system, 14.1 EER and a coefficient of performance (COP) of at least 3.3.
  • For an open-loop system, 16.2 EER and 3.6 COP.
  • For a direct expansion system, 15 EER and 3.5 COP.

In addition, the geothermal heat pumps must include a desuperheater, which helps heat water, or an integrated water heating system. In 2006 and 2007 geothermal heat pumps were eligible for a smaller credit as part of an earlier version of the home improvements credit described above.

Solar hot water heating and photovoltaic power systems placed in service by Dec. 31, 2016 are also eligible for the 30 percent credit, as are small wind systems. More information on renewable tax credits is available from the ENERGY STAR website.
Though available, residential fuel cell systems are rare in application. Some systems may be eligible for credits, subject to certain criteria.

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