The new economic stimulus law enacted earlier this year--the American Recovery and Reinvestment Act of 2009--provides tax incentives for saving energy both at home and at work. Here is a brief overview of the key tax rules in this area.

Tax breaks for homeowners: The new law triples the residential energy credit from 10% to 30% for qualified expenses after 2008 and before 2011. The list of qualified expenses includes:

*insulation materials;
*exterior windows (including skylights);
*exterior doors;
*central air conditioners;
*natural gas, propane and oil water heaters, or furnaces;
*hot water boilers;
*electric heat pump water heaters;
*certain roofs and stoves; and
*advanced main air-circulating fans.

In addition, the lifetime $500 dollar cap has been eliminated. Instead, the new law imposes a limit of $1,500 for 2009 and 2010 combined. The dollar caps for solar hot water property, geothermal heat pumps and wind energy property installed by homeowners are also removed. However, a $500 cap remains for qualified fuel cell property costs.

Note that the new law also enhances the credit for plug-in electrical vehicles purchased after 2009. The base amount of the credit for qualified plug-in vehicles will be $2,500 (subject to a phaseout once a manufacturer sells 200,000 units). Note: Plug-in vehicles are not in the commercial marketplace yet.

Tax breaks for business owners: If you own a business building, you may be able to claim a tax deduction equal to $1.80 per square foot for energy systems placed in service after 2005 and before 2014. Alternatively, a partial deduction of up to $.60 per square foot may be available.

To qualify for this deduction, the following four conditions must be met:

1. The property must be installed as part of the interior lighting systems; the heating, cooling, ventilation or hot air systems; or the building envelope.

2. The property must otherwise be depreciable or amortizable.

3. The property must be installed on or in a building in the United States that meets Standard 90.1-2001 of the American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE).

4. The property must be certified as a part of an overall plan designed to reduce the total annual energy and power costs by 50% or more in comparison to a reference building meeting the minimum requirements of ASHRAE Standard 90.1-2001.

The new law also enhances the energy tax benefits for certain business owners. Among other changes, it increases the credit for commercial refueling stations for alternative fuel vehicles from 30% to 50%. It also raises the cap on the credit to $50,000 for property placed in service in 2009 and 2010. The previous limit was only $30,000. Finally, the new law extends the credit for electricity produced from renewable sources through 2013 (2012 for wind facilities).

This is just the tip of the iceberg. More details about energy tax breaks are available upon request.