How Green Tax Credits Work

ARRA Tax Credits

A number of other tax credits put in place through the American Recovery and Reinvestment Act — and later extended by the American Taxpayer Relief Act — expired at the end of 2013. Some federal lawmakers on both sides of the aisle, businesses who have taken advantage of green tax incentives, the energy efficiency industry and the environmental advocacy crowd have been pushing Congress to renew the credits. It's not clear whether the tax savings would be made available retroactively in the event that the credits are renewed [sources: IRS, Barron-Lopez].

The Residential Energy Property Credit, for example, provided a tax break to homeowners who made their residences more energy efficient without making some of the more drastic and costly moves covered under the renewable energy credit. That includes installing insulation, energy efficient exterior windows and energy efficient heating and air conditioning systems. The credit was good for 30 percent of the cost of these improvements, up to a maximum of $1,500 [source: IRS].

For green drivers, the Plug-in Electric Drive Vehicle Credit offered tax savings of $2,500 to $7,500, depending on the car's battery capacity. The credit applied to plug-in electric cars with four or more wheels that weigh less than 14,000 pounds. A similar credit for two-and-three-wheeled vehicles — and those capable of only lower speeds — covered 10 percent of the vehicle's cost, up to $2,500. Finally, the feds allowed drivers who converted their cars to plug-in electric vehicles to take a credit for 10 percent of the associated costs, up to $4,000 [source: IRS].