The massive economic stimulus and government spending law, which was signed on December 27, 2020, extends several energy-related tax breaks. Before the Consolidated Appropriations Act (CAA) was signed, these federal income tax breaks (often called "extenders") were set to expire on December 31, 2020. Extenders are tax breaks that Congress has repeatedly allowed to expire before generally restoring them — often retroactively.
Here are some of the tax credits extended in the CAA.
For 2020, you can claim a federal income tax credit of up to $500 for the installation of certain energy-saving improvements to a principal residence. However, the $500 maximum allowance must be reduced by any credits claimed in earlier years. In other words, the $500 amount is a lifetime limitation.
New law: This break is extended to cover qualifying improvements placed in service in 2021. But if you already claimed the credit for an earlier year, you may be ineligible for any further credit.
You can claim a federal income tax credit for vehicles propelled by chemically combining oxygen with hydrogen to create electricity. The base credit is $4,000 for vehicles weighing 8,500 pounds or less. Heavier vehicles can qualify for credits of up to $40,000. An additional $1,000 to $4,000 credit is available to cars and light trucks to the extent their fuel economy meets federal standards.
New law: This credit is extended to cover qualifying 2021 purchases.
The 10% federal income tax credit for the purchase of qualifying electric-powered 2-wheeled vehicles manufactured primarily for use on public thoroughfares and capable of at least 45 miles per hour (in other words, electric-powered motorcycles) can be worth up to $2,500.
New law: This credit is extended to cover qualifying 2021 purchases.
There's a personal and business federal income tax credit for up to 30% of the cost of installing non-hydrogen alternative fuel vehicle refueling equipment for your Tesla or other EV.
New law: The credit is extended to cover qualifying 2021 expenditures.
There's a generous federal income tax credit for qualifying solar energy equipment expenditures for your home. For equipment placed in service in 2020, the credit rate is 26%. The rate was scheduled to drop to 22% for equipment placed in service in 2021 before being eliminated for 2022 and beyond.
New law: The 26% credit rate is extended to cover equipment placed in service in 2021 and 2022 and the law also extends the 22% rate to cover equipment placed in service in 2023. For 2024 and beyond, the credit is scheduled to vanish.
The energy-related tax breaks are only a small part of the massive new law. We will cover other new and extended tax breaks in other articles. Contact your tax advisor if you have questions about these credits or other tax breaks.
Get in touch today and find out how we can help you meet your objectives.
