Federal tax incentives for various green energy property investments are ending soon. The termination dates vary. This is just a reminder to take action now if the use of federal tax incentives is desired for your business or yourself, or if you are selling products or services that entitle customers to tax breaks. Here is a brief overview of some of these tax incentives—what they are and when they end.
Tax incentives — what they are and when they end
Energy efficient home improvement credit
This is a tax credit of 30% of the cost of certain energy improvements—e.g., insulation; storm windows—to a primary residence, up to a maximum credit of $1,200. Heat pumps and heat pump water heaters, biomass stoves, and biomass boilers have a separate annual credit limit of $2,000. Details can be found in the instructions to Form 5695.
Termination: The credit will not be allowed for any property placed in service after December 31, 2025.
Residential clean energy credit
This is a credit of 30% of the cost of solar panels and certain other renewals installed on existing homes and those being constructed. There is no dollar limit to the credit. Details can be found in the instructions to Form 5695.
Termination: The credit will not be allowed for any expenditures made after December 31, 2025. Merely paying for the property by this date is insufficient; the property must be installed by this date.
New clean vehicle credit
This is a credit up to $7,500 for the purchase of a plug-in electric vehicle that a has a manufacturer’s suggested retail price of not more than $55,000 ($80,000 for a van, SUV, or pickup truck). There are various conditions and limitations, including modified adjusted gross income limits for the purchaser. Details can be found in the instructions to Form 8936.
Termination: The credit will not be allowed for any vehicle acquired after September 30, 2025. A vehicle is “acquired” as of the date a written binding contract is entered into and a payment has been made. A payment includes a nominal down payment or a vehicle trade-in.
Previously-owned clean vehicle credit
This is a credit of the lesser of $4,000 or 30% of the sales price of a used plug-in electric vehicle with a sales price of no more than $25,000. Again, there are various conditions and limitations, including modified adjusted gross income limits for the purchaser. Details can be found in the instructions to Form 8936.
Termination: The credit will not be allowed for any vehicle acquired after September 30, 2025.
Commercial clean vehicle credit
The credit for a plug-in electric or fuel cell commercial vehicle is the lesser of 15% of the basis of the vehicle (30% for a vehicle not powered by a gasoline or diesel internal combustion engine), or the incremental cost of the vehicle. The credit is limited to $7,500 for light-duty vehicles (less than 14,000 pounds) or $40,000 for heavy-duty vehicles (14,000 pounds or more). Details can be found in the instructions to Form 8936.
Termination: The credit will not be allowed for any vehicle acquired after September 30, 2025.
Alternative fuel vehicle refueling property credit
This is a credit for installing a charging station.
- For property used in business or for investment, the credit is 6% (30% if prevailing wage and apprenticeship (PWA) requirements are met) of the property’s cost, limited to $100,000, for each single item of qualified alternative fuel vehicle refueling property.
- For property placed in service at a principal residence, the credit is 30% of the cost of the property, limited to $1,000 for each single item of qualified alternative fuel vehicle refueling property.
The credit only applies to installations in a low-income or rural area. Details of the credit are in the instructions to Form 8911.
Termination: The credit will not be allowed for any property placed in service after June 30, 2026.
New energy efficient home credit
Contractors may claim a credit for building energy efficient homes. The amount of the credit depends on whether the home is single-family, multi-family, or manufactured home. Details of the credit are in the instructions to Form 8908.
Termination: The credit will not be allowed for any qualified new energy efficient home acquired after June 30, 2026. In this context, “acquired” means when the dwelling unit is sold or leased to another person.
Energy efficient commercial buildings deduction
There is a tax deduction (not a credit) for energy efficient property placed in service in a commercial building. The amount of the deduction varies with energy efficiency achieved and whether prevailing wage and apprenticeship requirements are met. Details can be found in the instructions to Form 7205.
Termination: The deduction will not be allowed with respect to any property the construction of which begins after June 30, 2026. Because of the accelerated termination of this credit, periodic written reports, including reporting for property placed in service before January 1, 2026, are no longer required. A manufacturer is still required to register with the IRS to become a qualified manufacturer for its specified property to be eligible for the credit.
Final thought
As a general rule, tax results alone should never dictate investment decisions, but the dollar savings from tax credit cannot be ignored. While federal tax incentives may be ending, state-level tax incentives for green energy investments remain. You can find them at DSIRE.
For additional reading concerning tax breaks see this list of blogs.
