Monday, August 08, 2005

Energy awareness helps at Tax Time!

--Businesses get the bulk of the new tax breaks, there are perks for consumers in the new energy legislation awaiting the president's signature.
Tax breaks for hybrid car purchases or home improvements that conserve energy will take effect next year. Still, these tax incentives might be just enough to prompt consumers to make environmentally friendly, energy efficient moves, experts said.
"There are good tax breaks for the consumer," said an officer with the Alliance to Save Energy. "One thing to note, these are tax credits now, not tax deductions." Tax credits reduce your bottom line tax bill dollar-for-dollar, making it more valuable than a deduction.
Among the new federal tax breaks:
--Hybrid cars. Tax credits worth up to thousands of dollars will be available to those buying hybrid cars fueled by gas and electricity as well as other vehicles using alternative power sources.
[This tax credit essentially will replace the $2,000 federal tax deduction on hybrid purchases.
The size of the credit will depend upon the vehicle's weight, fuel economy and lifetime fuel savings.]
Buy a hybrid car next year, for example, and you may receive a tax credit ranging from $250 to $3,400.
But don't wait too long to make that purchase. The credit may only be claimed on the first 60,000 hybrids sold by each manufacturer, and thereafter it's phased out.
The credit will expire in 2010 for hybrid medium and heavy trucks and a year later on hybrid cars and light trucks, according to CCH. It runs through 2014 on fuel cell vehicles.
--Home improvements. You may qualify for a 10 percent tax credit on the cost of home improvements that prevent energy from seeping out of the house, such as adding insulation and energy-efficient windows and doors. (See WSJ, Personal Journal, pp.1&4)
The credit is available for the next two years, and the maximum credit over that time is $500. Of that, no more than $200 can be claimed for windows.
Additionally, homeowners can receive a tax credit for 30 percent of the cost of buying and installing a solar water heater or a solar electric system. The maximum credit is $2,000.
The credit also is available for two years, expiring at the end of 2007.
Often environmentally friendly appliances and equipment cost more upfront, and homeowners recoup the cost over time through lower energy bills. The maximum grant available is $2,000 for a solar water heater and $3,000 for a solar electric system for the home.
--Home construction. Builders may qualify for tax credits on installing energy efficient heating and cooling appliances, and that savings could be passed on to home buyers, Luscombe said. Depending on how much energy is conserved, the credit may be up to $1,000 or $2,000 per residence.