Home and Vehicle Energy Efficiency Tax Credits for 2009 and 2010

This page summarizes the tax credits that were available for home retrofits and for efficient vehicle purchases in 2009 and 2010. The energy efficiency income tax credits available for 2009 and 2010 differ from those available for improvements made from 2011 onwards. 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 varied 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 are experts on energy efficiency, not taxes, and we do not provide tax advice; you may want to consult a tax professional.

1. Home Energy Efficiency Tax Credits for 2009 and 2010
2. Hybrid, Diesel and Natural Gas Vehicle Tax Credits for 2010 and earlier

1. Home Energy Efficiency Tax Credits for 2009 and 2010

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For improvements made in 2009 and 2010, you could 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, due to passage of the American Recovery and Reinvestment Act (ARRA), efficiency criteria varied depending on when these items were "placed in service" (installed).

The American Recovery and Reinvestment Act of 2009 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.

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

• Exterior windows: Included skylights and storm windows.
• Insulation, exterior doors, or roofs: Included 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 were instead eligible for a separate tax credit.

The chart below summarizes the criteria for different products and their effective dates.

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

• Windows, doors, insulation, and roofs must have been expected to last at least five years (a two-year warranty is sufficient to demonstrate this).
• Manufacturers could certify (in packaging or on the company’s web site) which of their products qualified for the tax credit.
• All the improvements must have been installed in or on the taxpayer’s principal residence in the United States. Condo and co-op improvements could be 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 was 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 was a cap on the credit amount of $1,500 for fiscal years 2009 and 2010 combined; thus the credit applied to up to $5,000 in total costs.

When is it available? This version of the home improvements tax credit applied 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 were subject to the older criteria, but from Feb. 17 onward the newer stricter criteria applied – 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 required 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 applied. 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).

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 ARRA's 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 applied:

• Notice 2006-26, Credit for Nonbusiness Energy Property
• Notice 2006-53, Clarification of Notice 2006-26

Criteria for residential heating and cooling equipment, 2009-2010

In order to be eligible for the tax credit, heating and cooling equipment must have met specified measures of energy efficiency. Individuals can search for qualifying products on the Consortium for Energy Efficiency’s web site.

2. Hybrid, Diesel and Natural Gas Vehicle Tax Credits for 2010 and Earlier

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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 got it? Individuals and businesses that bought a new hybrid or diesel car or truck. If a tax-exempt organization bought such a vehicle, the retailer could have taken the credit. For leased vehicles, the leasor may claim the credit.
• What vehicles qualified? Hybrid vehicles that used less gasoline than the average vehicle of similar weight and that met an emissions standard. “Lean-burn” diesel vehicles also qualified, 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 have been in the United States and purchased before Jan. 1, 2011.
• How much was 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 could earn a $4,000 credit and the credit for electric vehicles can reach up to $7,500. If you bought more than one eligible vehicle, you could get a tax credit for each vehicle.

Note that the credit for electric vehicles is still available.

A. Hybrid Vehicles

Rhe following hybrid vehicles and credit amounts were officially certified:

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. Very detailed information on the tax credit is available in the IRS partial interim guidance for hybrid vehicle tax credit. Also, companies that buy heavy-duty hybrid trucks could get a larger tax credit prior to 2010.

When was it available? The tax credit was for vehicles “placed in service” after Dec. 31, 2006 and purchased on or before Dec. 31, 2010. The vehicle tax credit was 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 declined over the course of another year. The phase-out schedule is available in an appendix to this page.

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 were eligible for the tax credit.

Source: IRS, Updated December 16, 2010.

C. Natural Gas Vehicle

Alternative Fuel Vehicles (AFV’s) were eligible for a federal income tax credit of up to $4,000. To be eligible for this tax credit, the vehicle must have only been 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 expired at the end of 2010. The only stock passenger AFV car certified was the CNG model Honda Civic:

Source: IRS, updated October 5, 2010.

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