Currently, the largest group of tax credits are those designed to encourage energy conservation or other activities that benefit the environment. However, most of these credits are narrowly targeted, so the number of people eligible for them is actually quite small. The credits in this group include the residential energy efficient property credit, the residential energy credit (not available temporarily for 2008), the reforestation credit, the alternative fuels credit, the alcohol fuels credit, the enhanced oil recovery credit, and the renewable resources electricity production credit.

Residential energy efficient property credit. You can claim a tax credit for costs you incur for five categories of energy efficient property that you install at your home. The credits you can claim in 2009 for the five categories of property are:

• 30 percent of the cost of qualified solar electric property
• 30 percent of the cost of qualified solar water heating property
• 30 percent of the cost of qualified fuel cell property (limited to no more than $500 for each one-half kilowatt of capacity of the property)
• 30 percent of the cost of qualified small wind energy property
• $2,000 for qualified geothermal heat pump property

The credit is available for residential expenditures made through 2016. Prior to 2009, there were caps on the amount of the credit that could be claimed in each category. The only limitation remaining after 2008 is $500 per half kilowatt of capacity for fuel cell property. This change for 2009 and beyond represents a major expansion of the credit.

Residential energy credit. A tax credit of up to $500 was available to individuals for nonbusiness energy property, such as residential exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters, placed in service in 2007. Unfortunately, it is not available in 2008, but returns bigger and stronger for expenditures made in 2009 and 2010. The nonbusiness energy property must be installed in or on a dwelling unit in the United States that is owned and used by the taxpayer as the taxpayer's principal residence and originally placed in service by the taxpayer. There must be a reasonable expectation that the qualified energy efficiency improvements (exterior doors and windows, insulation, and certain metal roofs) will remain in use for at least 5 years.

The residential energy property credit is now limited to an aggregate maximum of $1,500 for tax years 2009 and 2010. The credit is equal to 30 percent of: (1) the residential energy property expenditures plus (2) the expenditures for qualified energy efficiency improvements. Eligible improvements include: insulation materials; exterior windows, including skylights; exterior doors; metal roofs with special pigmented coatings; electric heat pump water heaters; electric and geothermal heat pumps; central air conditioners; natural gas, propane, or oil water heaters or furnaces; hot water boilers; and advanced main air circulating fans.

Business energy credit. An energy credit is allowed for 10 percent of the cost of the following types of business property placed in service during the year: (1) equipment that uses solar energy to generate electricity, heat or cool a structure, provide hot water, or provide solar process heat; or (2) equipment used to produce, distribute, or use geothermal energy stored in rocks, water, or steam. The property must be depreciable (i.e., used in your business). The energy credit is part of the investment tax credit, and can be recaptured (paid back to the IRS) if the qualifying property is sold or disposed of before the end of its recovery period. It is claimed on Form 3468, Investment Tax Credit.

Reforestation credit. For those in timber production, the 10 percent reforestation credit applies to up to $10,000 of the expenses you incur each year to forest or reforest your property. Eligible expenses include the costs of site preparation, seeds or seedlings, labor, and tools, including depreciation on machinery and equipment. The property must be held for growing trees for sale or use in the commercial production of timber products. The reforestation credit is part of the investment tax credit and is claimed on Form 3468, Investment Tax Credit.

Alcohol fuels credit. Producers of alcohol fuels or mixtures such as gasohol or ethanol can receive a tax credit for any sale or use of such fuels. The credit is scheduled to terminate with respect to sales or uses that occur: for any period after December 31, 2010, or for any period before January 1, 2011, during which the rates of tax are 4.3 cents per gallon. No carryforward of the credit is permitted for any tax year beginning after 1994. The alcohol fuels credit is part of the general business credit. It's claimed on Form 6478, Credit for Alcohol Used as Fuel.

Enhanced oil recovery credit. If you begin or significantly expand a domestic oil recovery project that uses certain tertiary recovery methods - such as the injection of liquids, gasses, or other matter - to increase crude oil production, you can take a credit for 15 percent of your qualified enhanced oil recovery costs for the tax year. The enhanced oil recovery credit is part of the general business credit. It's claimed on Form 8830, Enhanced Oil Recovery Credit.

Renewable resources electricity production credit. This credit is based on electricity that is produced from wind or closed-loop biomass (organic material grown exclusively for electricity production) and sold to third parties, from facilities placed in service after 1992 and before January 1, 2011, or wind energy facilities placed in service after 1993 and before January 1, 2011.

The credit also applies to electricity produced by poultry waste facilities placed in service in 2000 through the end of 2010. In addition, the credit applies to the following types of facilities placed in service after October 22, 2004, and before January 1, 2011: geothermal, solar energy, small irrigation power, landfill gas, and trash combustion. Refined coal production facilities also qualify if placed in service before January 1, 2010.

The credit for calendar year 2008 is 2.1 cents per kilowatt hour of such electricity sold (adjusted annually for inflation). The credit will terminate on January 1, 2013 for wind facilities and on January 1, 2014 for most other types of facilities. The credit is part of the general business credit. It's claimed on Form 8835, Renewable Electricity Production Credit.