Energy Costs Rise as Tax Incentives Diminish

With oil costs skyrocketing, you would think that the federal government would come up with some tax incentives to cut the consumption of energy. However, on the consumer end of taxes, the incentives are actually fading away. Apparently, federal lawmakers and administrators believe the high cost of energy in itself is incentive enough to reduce consumption. The following are the only energy-related tax incentives remaining for individual taxpayers:

• Residential Energy Credit – The only federal tax incentive left for homeowners is the Residential Energy Credit, which, without Congressional action, expires at the end of 2008. So act soon if you want to take advantage of the following credits:

o Solar electric systems – A credit equal to 30% of the cost ($2,000 maximum credit) for the installation of a qualified solar electric system (50% of the energy is generated from the sun) in the taxpayer’s primary or secondary home located in the United States.

o Solar water heating systems – A credit equal to 30% of the cost ($2,000 maximum credit) for the installation of a qualified solar water heating system in the taxpayer’s primary or secondary home located in the United States.

o Fuel cell power plant – A credit of $500 per 0.5 kilowatts of electricity generated by electrochemical means from a qualified fuel cell plant installed in the taxpayer’s primary home located in the United States.

These credits are nonrefundable and can only offset your income tax for the year. However, any unused credit can be carried forward. No credit is allowed for expenditures allocable to swimming pools, hot tubs, etc. If you are taxed by the alternative minimum tax for the year, you may lose the benefit of part or all of the credit.

• Alternative Motor Vehicle Credits – Beginning in 2006, a federal tax credit is allowed when a taxpayer purchases a hybrid, alternate fuel, lean burn or fuel cell motor vehicle. Before you run out to look for one of these vehicles, you should know that only hybrid vehicles are readily available for consumer purchase. The credit amount ranges from $250 to $3,400 depending upon the energy efficiency of the vehicle. Without Congressional intervention, this credit will no longer be available after 2010. In addition, a credit for vehicles of a particular manufacturer begins to phase out after the first 60,000 hybrids produced by the manufacturer are sold. The most popular hybrid manufacturers, Toyota and Honda, have already reached the phase-out: No credit is allowed for Toyota vehicles purchased in 2008 or after, and credits for Honda hybrids purchased July 1 through the end of 2008 are reduced by 75% (50% for purchases in the first six months of 2008). Post-2008 Honda hybrid purchases do not qualify for the credit.

If you are considering a hybrid vehicle, full tax credits are still available for hybrids manufactured by Ford, General Motors, Nissan and Mazda. Unused credit is not carried forward for vehicles that are 100% personal use, and, if you are taxed by the alternative minimum tax, you may not receive the benefit for part or all of the credit. Where the vehicle is used for business purposes, the business portion of the credit is a general business credit, and any unused amounts are carried back/forward under the provisions of the general business credit.

Before committing to a residential energy-saving system or the purchase of a hybrid vehicle, you should contact this office to make sure that you qualify and would benefit from the credits.

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