Bar News - September 20, 2017
Environmental, Telecomm, Utilities & Energy Law: Energy Efficiency Tax Credits Fading: Buy That Tesla Now
By: Laura Petrasky
Several of the federal tax credits for individual taxpayers that expired Dec. 31, 2016, were for investments in energy efficient or renewable energy products. Taxpayers can no longer claim tax credits for installing energy efficient windows or geothermal heat pumps, for example. But some energy-related tax credits are still available for the 2017 tax year and beyond – most notably for solar energy and electric vehicles.
Although taxpayers can no longer claim tax credits on many residential energy improvements for 2017, tax credits for solar electric and solar water heating systems are still available. These solar energy systems must be installed in the taxpayer’s residence, and the installation must be completed by Dec. 31 of the relevant tax year. The credit is worth 30 percent of the cost, and there is no upper limit. The installation cost of the equipment can be included in the cost calculation.
To claim the credit, taxpayers must fill out IRS Form 5695 and submit it with their 2017 IRS Form 1040. This same credit will be available for the 2018 and 2019 tax years. After Jan. 1, 2020, the credit amount begins to diminish, until it ultimately expires Dec. 31, 2021.
The qualified plug-in electric drive motor vehicle tax credit also remains available and applies to many electric vehicles. Different vehicles qualify for different amounts of credit, depending on the capacity of their battery packs. The Internal Revenue Service has compiled a manufacturer index from which a consumer can look up the credit available for a specific car model. To claim the credit, taxpayers must fill out IRS Form 8936 and submit it with their IRS Form 1040.
Tax credits for qualifying electric vehicles do not have scheduled expiration dates, but some could begin to be phased out over the next few years.
The electric vehicle credits phase out after the manufacturer sells 200,000 electric vehicles in the United States, cumulatively, beginning in 2010. The tax credit phase-out period for all Tesla manufactured electric vehicles, for example, begins when Tesla Motors sells a total of 90,000 Tesla Roadsters, 30,000 Tesla Model S Vehicles, and 80,000 Model X Vehicles in the United States, starting in 2010.
The phase-out period then spans about four or five calendar quarters. Consumers can claim 100 percent of the credit for vehicles sold during the quarter in which the 200,000 limit was reached and for the next quarter. The credit would be reduced by 50 percent for vehicles sold during the succeeding second and third quarters.
We can use the Tesla example to illustrate this phase-out plan. If Tesla sells 200,000 electric vehicles by April 1, 2018, the credit drops by 50 percent for Tesla vehicles sold between Oct. 1, 2018, and March 31, 2019. The credit is further reduced to 25 percent of the original credit for vehicles sold during the succeeding fourth quarter. No car manufacturer has yet sold 200,000 electric vehicles in the United States. However, it is predicted that General Motors and Tesla may reach this magic number in 2018 or 2019.
Knowing which energy efficiency tax credits remain helps attorneys advise their clients accordingly. Anyone interested in installing a solar energy system or purchasing an electric vehicle would be wise to do so before the rest of these tax credits phase out.
Laura Petrasky served as a summer intern at the Low-Income Taxpayer Project, part of the Pro Bono Referral Program at the New Hampshire Bar Association.