A tax credit can provide significant savings. It reduces the amount of income tax you have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a tax credit directly reduces the tax itself.
The following resources provide information on federal tax credits available to small businesses for making energy efficiency upgrades.
Tax Credits for Home Builders
Eligible contractors need to fill out IRS Form 8908 to get the tax credit. The IRS has provided the following guidance regarding the tax credits for constructing energy efficient new homes available under the Energy Policy Act of 2005:
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IRS Notice 2006-27 provides guidance for the credit for building energy efficient homes other than manufactured homes.
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IRS Notice 2006-28 provides guidance for the credit for building energy efficient manufactured homes.
The tax credit information provided below is based on information contained in the Energy Policy Act of 2005. The IRS guidance provides specific information that home builders and housing manufacturers can rely on to take action to claim the tax credits. ENERGY STAR will study the IRS publications and provide updates as necessary.
Home builders are eligible for a $2,000 tax credit for a new energy efficient home that achieves 50% energy savings for heating and cooling over the 2004 International Energy Conservation Code (IECC) and supplements. At least 1/5 of the energy savings must come from building envelope improvements. This credit also applies to contractors of manufactured homes conforming to Federal Manufactured Home Construction and Safety Standards.
There is also a $1,000 tax credit to the producer of a new manufactured home achieving 30% energy savings for heating and cooling over the 2004 IECC and supplements (at least 1/3 of the savings must come from building envelope improvements), or a manufactured home meeting the requirements established by EPA under the ENERGY STAR program.
Please note that, with the exception of the tax credit for an ENERGY STAR qualified manufactured home, these tax credits are not directly linked to ENERGY STAR. Therefore, a builder of an ENERGY STAR qualified home may be eligible for a tax credit but it is not guaranteed.
These tax credits apply to new homes located in the United States whose construction is substantially completed after August 8, 2005 and that are acquired from the eligible contractor for use as a residence from January 1, 2006 through December 31, 2008.
Tax Credits for Manufacturers
While not directly affecting consumers, manufacturers of energy efficient clothes washers, dishwashers and refrigerators are eligible for tax breaks themselves, which may lead to increased availability and a reduction in prices for these energy-saving appliances:
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ENERGY STAR qualified dishwashers that meet ENERGY STAR's 2007 specification.
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ENERGY STAR qualified clothes washers that meet ENERGY STAR's 2007 specifications.
Tax Deductions for Commercial Buildings
A tax deduction of up to $1.80 per square foot is available to owners or designers of new or existing commercial buildings that save at least 50% of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001. Partial deductions of up to $.60 per square foot can be taken for measures affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems. The credits are available for systems "placed in service" from January 1, 2006 through December 31, 2008.
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IRS Notice 2006-52 (6/2/2006) provides guidance on deduction for energy efficient commercial buildings
Additional Information About Federal Tax Credits
Produced in partnership with the U.S. Small Business Administration, Business Gateway and ENERGY STAR®