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09/19/13

Home and Vehicle Tax Credits

Many tax credits for homeowners and commuters that expired at the end of 2011 have been reinstated until December 31, 2013. If you made energy efficiency improvements to your home or purchased an eligible electric vehicle in 2013, you may claim those credits on your 2013 tax return, using the criteria below.

Table of Contents

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.

A Brief History of Tax Credits

This page provides details on valuable federal income tax credits for consumers who purchase plug-in hybrids and electric vehicles and who make certain specified energy efficiency upgrades to their homes. The American Tax Payer Relief Act of 2012 (H.R. 8) extends home, vehicle, and appliance efficiency tax credits, which expired in 2011, until December 31, 2013.

Consumers who employ energy-efficient products in their homes or drive plug-in hybrids or electric 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 use less gasoline and 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.

A brief history of the home improvement, 'non-business energy property,' tax credit:

Home Energy Efficiency Tax Credits

The reinstatement of the American Tax Payer Relief Act of 2012 amends section 25C of the tax code, which details nonbusiness energy property tax credits, and extends these credits until December 31, 2013. Changes made to this section apply to property placed in service after 2011. Previously, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended section 25C by one year through 2011. It also largely returned the structure of the provision as it existed prior to the 2009 American Recovery and Reinvestment Act (ARRA), with some tighter requirements for improvements to qualify.

Between 2011 and 2013, there are 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 in their primary residence which they own.

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 conditioners, heat pumps, furnaces, hot water boilers, water heaters, advanced main air circulating fans, or biomass stoves. A separate credit applies for geothermal heat pump 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 2013 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, 2013. 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 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.

Credit values and requirements for property placed in service between 2011 and 2013:

  • 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.

Product

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 for most systems.

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.

Source: ENERGY STAR, updated August 6, 2013. 

Electric Vehicle Tax Credits

Highway-capable battery-powered plug-in vehicles and plug-in hybrids purchased or leased new may be available for a credit of up to $7,500, based on their battery capacity, under section 30D of the tax code. Use IRS form 8936 (not always necessary for business use); businesses will also note the credit on form 3800. 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 Year and Model

Credit Amount

2014 Accord Plug-In Hybrid

$3,626

2012 AMP GCE & MLE EV

$7,500

2011/2012 Azure Dynamics Transit Connect EV

$7,500

2012 BYD e6 EV

$7,500

2013 Fiat 500e

$7,500

2010-2012 CODA Sedan

$7,500

2011-2012 EVI Medium Duty & Walk-In Electric Trucks

$7,500

2010 EMC Model E36 7, E36t & E36v

$7,500

2012 Fisker Karma Sedan

$7,500

2012-2013/2014 Ford Focus Electric

$7,500

2013 Ford C-MAX Energi

$3,751

2013-2014 Ford Fusion Energi

$3,751

2011-2014 Chevrolet Volt

$7,500

2014 Chevrolet Spark EV

$7,500

2013 Mercedes-Benz smart Coupe/Cabrio EV

$7,500

2012 Mitsubishi i-MiEV

$7,500

2011-2013 Nissan Leaf

$7,500

2011 Smart Fortwo Electric Drive Vehicle

$7,500

2008-2011 Tesla Roadster

$7,500

2012 Tesla Model S

$7,500

2011 Think City EV

$7,500

2012-2013 Toyota Prius Plug-in Electric Drive Vehicle

$2,500

2012-2013 Toyota RAV4 EV

$7,500

2011 Wheego LiFe EV

$7,500

Source: IRS, updated August 6, 2013

Geothermal Heat Pumps, Renewable Energy, and Fuel Cells

Tax credits are available for geothermal heat pumps (GHPs), 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. A qualifying GHP may be installed in either a principal residence or a second home. These credits are effective through December 31, 2016. In order to be eligible for the tax credit, geothermal heat pumps must meet the requirements of the ENERGY STAR program which are in effect at the time of the expenditure. ENERGY STAR qualified geothermal heat pumps now also include water-to-water GHPs.

Solar 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 systemsMore 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.

Source: ENERGY STAR, updated August 6, 2013.