News & Insights

October 24, 2008
By Phillip L. Jelsma

There were a number of energy-related tax provisions affecting individuals and small businesses included in the financial bailout bill, the Emergency Economic Stabilization Act of 2008, P.L. 110-343 (the “Act”). A number of these provisions are new, some apply retroactively and importantly, some of them provide relief from the Alternative Minimum Tax (“AMT”). A brief description of each of these can be found below.

TAX CREDITS.

Nonbusiness Energy Property Credit Extended and Expanded.

The nonbusiness energy property credit expired last year. The Act extends it through 2009 only, but does not retroactively apply the credit to 2008. Therefore, it provides credits for qualifying energy saving properties purchased after October 3, 2008 and before December 31, 2009.

In addition, the list of eligible property, which had previously included insulation materials or systems, exterior windows (including skylights), exterior doors and metal roofs, which improve energy efficiencies, now includes stoves that burn bio-mass of fuel to heat homes and residential water heaters, as well as expenditures for water heaters with the thermal efficiency of at least 90%. Certain asphalt roofs can also qualify for nonbusiness energy credits.

Credit for Residential Energy-Efficient Property Extended and Expanded.

The Act extends through 2016, the tax credit for “Residential Energy-Efficiency Property”, which was set to expire at the end of this year. Also, beginning in 2008, clients can use the credit against the AMT. The Act also adds two new types of qualifying property and beginning after 2008, removes the credit limit for qualified solar electric property.

Under prior law, the credit was based on expenditures for three types of property: qualified solar electric property, qualified solar water heating property and qualified fuel cell property. The Act adds two new categories, qualified small wind energy property and qualified geothermal heat-pump property. The credit for each type of property is 30%, subject to a dollar limit. These limits are as follows: (1) $2,000 for qualified solar electric property in 2008, but this limit is removed after 2008; (2) $2,000 for qualified solar water heating property expenditures: (3) $2,000 for qualified geothermal heat pump property expenditures; (4) $500 for each half kilowatt of capacity (not to exceed $4,000) for qualified wind energy property; and (5) $500 for each half kilowatt of capacity for qualified fuel cell property expenditures. The Act allows these credits to be used to offset the AMT.

Alternative Fuel Vehicle Refueling Property Credit.

The Act extends the credit for one year, through 2010 and designates electricity as an eligible clean-burning fuel effective for property or placed in service after October 3, 2008. The amount of the credit is 30% of the cost of qualified alternative fuel vehicle refueling property, where the fuel is at least 80% of the volume consists of ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas or hydrogen, or a mixture of biodiesel and diesel fuel containing at least 20% biodiesel. The Act also adds electric vehicle recharging property to the types of property eligible for the credit.

New Credit for Plug-In Electric Cars and Trucks.

The Act establishes a credit for plug-in electric cars and trucks apply for years after 2008 and equals $2,500 plus $417 for each kilowatt hour of traction battery capacity in excess of 4 kilowatt hours. The credit cannot exceed the following amounts: (1) $7,500 for vehicles with gross vehicle weight rating of 10,000 lbs or less; (2) $10,000 for vehicles with gross vehicle weight rating between 10,001 lbs and 14,000 lbs; (3) $12,500 for vehicles with a gross vehicle weight rating between 14,001 lbs and 26,000 lbs; and (4) $15,000 for vehicles with a gross vehicle weight rating or more than 26,000 lbs.

The tax credit for plug-in cars, electric cars and trucks may also offset the AMT, unlike the current credit for the purchase of hybrid vehicles.

Credit for Biodiesel and Renewable Diesel.

The Act extends the existing credit for 2009 and increases the credit rate from $.50 per gallon to $1 per gallon for biodiesel and renewable diesel fuel produced, sold or used after 2008.

Energy-Efficient Appliance Credit Extension Modification.

The Act extends the credit for appliances manufactured through 2010. In addition, the Act increases the credit amounts for the following appliances: Dishwashers $45 to $75; Washing Machines $75, $125, $150, $250; Refrigerators $50, $75, $100 and $200 depending on the manufacture date and level of efficiency.

The overall limitation on the use of these credits of $75,000 is increased by resetting the limitation so as to disregard credits taken for tax years beginning before 2008.

Extension of Credit for Energy-Efficient Improvements to New Homes.

Under current law, contractors receive a credit for the construction of energy-efficient homes that achieve a 30% or 50% reduction in heating and cooling energy consumption relative to comparable dwelling. The credit equals $1,000 per home meeting a 30% efficiency standard and $2,000 for homes meeting a 50% standard. The Act extends this credit through 2009.

Extension of the Energy Credit.

The Act extends the existing 10% for microturbine property and the 30% credit for solar energy property and qualified fuel cell property through 2016. It also increases the $500 per half kilowatt capacity cap for qualified fuel cells to $1,500.

In addition, combined heat and power system property as well as geothermal heat pump systems are now eligible for the credit. Small wind energy property that uses a qualifying small wind turbine to generate electricity also qualifies for the energy credit, but with a $4,000 maximum credit limit. Finally, the energy credit may offset AMT beginning the first taxable year after October 3, 2008.

DEDUCTIONS.

Depreciation Deductions for Recycled Property.

The Act allows 50% bonus depreciation deduction for any machinery and equipment, including software, used exclusively to collect, distribute, or recycle certain recyclable materials. The deduction is allowed against the AMT.

Energy-Efficient Commercial Buildings Deductions.

The current deduction for installation of energy-efficient materials, such as interior lighting systems, heating, cooling, ventilation and hot water systems, or the building envelope which was scheduled to expire in 2008 has been extended through 2013. The amount of the credit, which is $1.80 per square foot, does not change.

Bicycle Commuters.

The Act also allows employers to provide employees who commute to work a nontaxable fringe benefit for the reasonable expenses incurred by the employee for the purchase of a bicycle and bicycle improvements, repairs and storage, provided the bicycle is used regularly for travel between the employee’s residence and the place of employment. The amount of the fringe benefit is limited to $20 per month for tax years beginning after December 31, 2008.

More information concerning these different credits are discussed at http://greentax.typepad.com.