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January 15, 2009
Greetings,
 
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This alert, from Desmond G. Sheridan, concerns recent changes to residential energy efficient property tax credits. 
Residential Energy Efficient Property Tax Credit
Extended and Modified
 

Background. An individual is allowed an annual tax credit for the purchase of residential energy efficient property equal to the sum of:

         (1) 30% of the amount paid for qualified solar energy property (i.e., property that uses solar power to generate electricity in a home), up to a maximum credit of $2,000;
         (2) 30% of the amount paid for qualified solar water heating property, up to a maximum credit of $2,000; and
         (3) 30% of the amount paid for qualified fuel cell property, up to a maximum credit of $500 for each 0.5 kilowatt of capacity.
 
The equipment in (1) and (2) can be installed in a taxpayer's residence (including a vacation home). The equipment in (3) must be installed in a taxpayer's principal residence, which may include a co-op or condo. Cost includes installation as well as hardware costs. All three types of equipment must be installed in a home located in the U.S., and can't be used to heat a swimming pool or hot tub.
 
Before recent law changes, the credit applied for property placed in service before 2009.
 
New law. The new law extends the residential energy efficient property credit for eight years, so that it is available for property placed in service before 2017.  For tax years beginning after Dec. 31, 2008, the new law removes the $2,000 limitation on the credit allowed for a tax year for qualified solar energy property expenditures.
 
For tax years beginning after 2007, the new law adds two new components to "residential energy efficient property." The credits now equal 30% of:
 
         ... qualified small wind energy property expenditures made by the taxpayer during the tax year, i.e., an expenditure for property that uses a wind turbine to generate electricity for use in connection with a dwelling unit located in the U.S. and used as a residence by the taxpayer.
         ... qualified geothermal heat pump property expenditures made by the taxpayer during the tax year, i.e., an expenditure for qualified geothermal heat pump property installed on or in connection with a dwelling unit located in the U.S. and used as a residence by the taxpayer.  Qualified geothermal heat pump property is any equipment that (1) uses the ground or ground water as a thermal energy source to heat the dwelling unit or as a thermal energy sink to cool the dwelling unit; and (2) meets the requirements of the Energy Star program that are in effect at the time the expenditure is made.  This component of the credit is limited to $2,000 for any qualified geothermal heat pump property expenditures.

Credit can offset AMT. For tax years beginning after 2007, the new law adds the residential energy efficient property credit to credits which can offset alternative minimum tax. Thus, the residential energy efficient property credit can be claimed against both regular tax and AMT.

Conclusion.  This new law will probably not affect most people.  However, if you're in the market for a heating system or water heater, you should consider these incentives.
About the writer:  Desmond G. Sheridan is a certified public accountant and is a partner in the Greensboro law firm of Isaacson Isaacson Sheridan & Fountain, LLP.  His practice areas are business transactions, tax, corporations, limited liability companies, commercial real estate and estate planning.  Sheridan has served on the Board of Directors of the North Carolina Association of Certified Public Accountants and has been recognized as a North Carolina "Super Lawyer" and a member of the "Legal Elite" by Business North Carolina.  He has given numerous continuing education presentations to CPAs and attorneys.

Some disclaimers:  First, nothing in this email should be construed as legal advice.  Second, an attorney-client relationship may only be established by a formal engagement with our firm.  Third, this email is informational only; you should not act on any legal matters except with the specific advice of your counsel.


Desmond G. Sheridan
 
Isaacson Isaacson Sheridan & Fountain, LLP
Suite 400, 101 W. Friendly Ave. (27401)
P.O. Box 1888 (27402)
Greensboro, North Carolina
 
(336) 275-7626
 
 
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