AC-Appliance Pros
New Energy Tax Incentives
Uncle Sam is getting serious about energy conservation with the passage of the Energy Tax Incentives Act of 2005. Long in coming and much less extensive than originally proposed, the act contains over 150 code changes and $14 billion in energy tax cuts.
While many of the tax incentives were created to help businesses, energy producers, and improve energy infrastructure, there are many incentives available for the individual taxpayer. To most Americans the primarily benefits will be in encouraging energy-efficient homes and hybrid vehicles. Below are some of the more significant tax incentives for individuals.
Residential Energy Efficiency
Individuals who install solar photo voltaic and hot water systems after 2005 may be eligible for a 30% tax credit up to a maximum of $2,000 per year. The credit is not available for equipment purchased to heat a pool or hot tub.
Residential Energy conservation
The new law provides for a credit equal to 10% of the cost of energy efficiency improvements to existing homes. The credit is limited to $500 in total, of which no more than $200 may be for windows, $50 for each circulating fan, $150 for each boiler, or $300 per individual item. The property must be purchased new after 2005 and expected to have at least a 5-year life. When combined with other state and local tax incentives these credits are making energy conservation an more cost effective alternative.
Green Vehicles
The new Act creates incentives for the purchase of environmentally friendly vehicles. These include hybrid, advanced lean-burn diesel, alternative fuel and fuel cell vehicles. The credits are calculated in different ways depending on the type, weight and economy of vehicle. Generally, in the car and light truck category the credits vary for the maximum credit from $3,400 to $12,000. The credit is available for vehicles purchased after 2005 and before 2010.
New Home Construction
There is a credit for the construction of new energy efficient homes and manufactured homes. The credit is $2,000 for new construction and $1,000 for manufactured. To qualify, the new homes must meet certain conservation standards and be completed and sold after 2005 and before 2008.
Individual Energy Tax Credits
Tax credits are better than tax deductions. Credits are dollar for dollar reductions of your tax liability while deductions are merely subtractions from your income in which tax is calculated on. Below is a summary of the maximum individual tax credits available for key energy conservation expenditures.
Energy efficient home improvements - $500 Lifetime
Energy efficient new home construction - $2,000
Energy efficient manufactured home - $1,000
Solar water heaters & photo voltaic - $2,000
Hybrid vehicle - $3,400
Fuel cell vehicle - $12,000
Advanced lean-burn vehicle - $3,000
Alternative fuel vehicle - $4,000
If a taxpayer takes a credit for any expenditure with respect to any property, the increase in the basis of the property that would (but for this provision) result from the expenditure is reduced by the amount of the credit. Code $$25C(f), added by Pub. L. 109-58, Energy Policy Act of 2005, Section 1333.
Expenditures for two or more dwelling units: If an expenditure on qualified energy efficiency improvements or qualified energy property is made with respect to two or more dwelling units, the limitations on the tax credit are computed separately for each dwelling unit based on the amount of the expenditure made for each dwelling unit. Code $$25C(e), added by Pub L. 109-58, Energy Policy Act of 2005. Section 1333.
Residential Energy Efficient Property Credit
CAUTION: This tax credit is not available for any property placed in service before January 2, 2006.
For qualifying property placed in service after December 31, 2005 and before January 1, 2008, individual taxpayers are allowed a tax credit equal to the sum of:
(1) 30 percent of expenditures made during the tax year for qualified photovoltaic property, up to an annual limit of $2,000;
(2) 30 percent of expenditures made during the tax year for qualified solar water heating property, up to an annual limit of $2,000; and
(3) 30 percent of expenditures made during the tax year for qualified fuel cell property, up to an annual limit of $500 for each half kilowatt of capacity of the property. Code $$25D(b)(1), added by Pub. L. 109-58, Energy Policy Act of 2005, Section 1335.
The depreciable basis of the property is reduced by the amount of the credit taken. Code $$25D(f), added by Pub. L.109-58, Energy Policy Act of 2005, Section 1335.
Credit carryover: If the amount of the allowable credit exceeds the limitations on the credit for the tax year, then the excess credits may be carried forward to the succeeding tax year and, subject to the limitations that apply to that year, the credit may be used in that year.
Qualified photovoltaic property: Qualified photovoltaic property is property that uses solar energy to generate electricity for use in a dwelling unit used as a residence by the taxpayer and located in the United States. Code $$25D(d)(2), added by Pub. L. 109-58, Energy Policy "Act of 2005, section 1335.
Qualified solar water heating property: Qualified solar water heating property is property that uses solar energy to heat water for use in a dwelling unit used as a residence by the taxpayer and located in the United States. For this property to qualify for the credit, at least half of the energy used by the property to heat water must be derived from the sun. In addition, such property must be certified for performance by the non-profit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the state in which such property is installed. Code $$25D(d)(1), added by Pub. L. 109-58, Energy Policy Act of 2005, Section 1335.
Qualified fuel cell property: Qualified fuel cell property is a n integrate4d system that is:
(1) comprised of a fuel cell stack assembly and associated balance of plant components by which fuel is converted into electricity using electrochemical means (a so –called "fuel cell power plant"); and
(2) installed on or in a dwelling unit used as a principal residence by the taxpayer and located in the United States. The fuel cell power plant must have a nameplate capacity of at least 0.5 kilowatt of electricity and must have an electricity-only generation efficiency greater than 30 percent. Code Section 25D(b)(1), added by Pub. L. 109-58, Energy Policy Act of 2005, Section 1335.
Examples of qualifying expenditures: The following are some specific types of expenditures that may qualify for this credit:
(1) solar panels or other property installed as a roof or a portion of a roof (even if that property constitutes a structural component of the dwelling unit on which it is installed);
(2) the labor costs that are properly allocable to the onsite preparation, assembly, or original installation of the property; and
(3) the piping or wiring to interconnect the property to the dwelling unit.
However, expenditures properly allocable to a swimming pool, hot tub, or any other energy storage medium that has a function other than a storage function are not eligible for the credit.
Non-Business Energy Property Credit
CAUTION: This tax credit is not available for any property placed in service before January 1, 2006.
For property placed in service after December 31, 2005, and before January 1, 2008, individual taxpayers are allowed a tax credit equal to the sum of:
(1) 10 percent of the amount paid or incurred during the tax year for qualified energy efficiency improvements/ and
(2) the amount paid or incurred during the tax year for residential energy property.
The maximum tax credit allowed for all tax years with respect to the same dwelling unit is $500. Code $$25C, added by Pub. L. 109-58, Energy Policy Act of 2005, Section 1333.
Limitations based on type of property: There are also additional limitations on specific types of property:
(1) The maximum credit that may be taken for exterior windows is $200.
(2) The maximum credit that may be taken for any item of energy-efficient building property is $300
(3) The maximum credit that may be taken for any qualified natural gas, propane, or oil furnace or hot water boiler is $150.
(4) The maximum credit that may be taken for any advanced main air circulating fan is $50. Code $$25C(b), added by Pub. L. 109-58, Energy Policy Act of 2005, Section 1333.
If you don't know which firm to call, ask if the contractor is a member of the Air Conditioning Contractors of America (ACCA). consumers can call (972)247-5383 or 1-800-260-8041 to confirm the contractor is a member or to locate a contractor who subscribes to the organization's code or ethics.
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