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Energy Star rebates aren’t federal income

April 22, 2010

America's become the great rebate country. In addition to all those tax rebate checks during Dubya's tenure, in these early years of the Obama administration we've
gotten
lots of energy-related rebates.

Remember Cash for Clunkers? Officially known as the Car Allowance Rebate System or CARS, that program last summer enticed more drivers than expected to traded in their gas guzzlers for energy efficient autos.


Energy star logo Next came the appliance rebate extravaganza. Here
states got a chunk of $300 million appropriated as part of the American Recovery and Reinvestment Act (ARRA for short, but better known as the February 2009 stimulus bill) to encourage shoppers to replace their old refrigerators et al with Energy Star appliances.

Taxable rebates? And shoppers asked the same tax questions of each rebate program? Is the money I'm saving on these purchases considered taxable income?

The good news from the IRS in both cases is no. I wanted to make sure on Earth Day 2010 you weren't worrying about the tax implications of trading in your old electricity sucking appliance for a new more efficient one.

The official appliance rebate nontaxable income answer came late last month via a letter from the IRS Office of Chief Counsel to program managers. The IRS' attorney wrote, in part:

[T]he Internal Revenue Service will treat payments to consumers funded by the $300,000,000 ARRA appropriation (ARRA Energy Star rebates) as reductions in the purchase price of the purchased product rather than income. Consequently, consumers must reduce the adjusted basis of property acquired with an ARRA Energy Star rebate by its amount and must not treat that amount as an expenditure in determining any federal income tax deduction or credit. In addition, States and other payors of ARRA Energy Star rebates are not required to report such payments on Forms 1099.

In
English, as is typically the case with rebates, you don't have to count
your appliance program savings as taxable income.

But neither can use double dip on tax breaks. If you use the Energy Star appliance to claim any other federal tax credit or deduction, you must reduce the cost of the energy-saving item by the rebate amount to come up with the price with which you figure your subsequent tax break.

The energy-saving rebates are just part of recent law changes that reward environmentally friendly actions.

For a look at the variety of ways to get bigger tax savings by reducing your carbon footprint, check out Enjoy eco tax breaks at my other Earth Day post at Bankrate's Taxes Blog.

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Comments
  • Larry Calderone

    Alaska Housing Finance Corp gives a $7500 rebate if you purchase a 5 star plus home. They issue a 1099 and say that it is taxable. Is this correct?

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