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Yerkes & Michels, CPA, LLC
Tax Tips
Energy Credits
The Energy Tax Incentives Act of 2005 included many incentives intended to reward both energy production and conservation. While several of the provisions apply to only narrow groups, some will benefit many taxpayers, including homeowners. One of these is the Nonbusiness Energy Property Credit.
Beginning in 2006, homeowners can claim a personal tax credit equal to the sum of:
1. 10% of expenditures for "qualified energy efficiency improvements" installed during the year plus
2. 100% of "residential energy property expenditures" paid or incurred by the taxpayer during the year.
Some basic rules:
>Qualifying property must be installed on or in the taxpayer's principal residence (vacation & rental homes don't qualify)
>the improvement must be new (not used) property
>the lifetime credit limit is $500 - this is the limit for a jointly occupied residence, also. This limit spans tax years.
>the property must be placed in service in 2006 and 2007.
Qualified energy efficiency improvements includes such items as insulation materials or systems designed to reduce heat loss or gain, exterior windows ($200 limit), including skylights, exterior doors, and metal roofs coated with heat-reduction pigments.
Residential energy property expenditures include qualified electric heat pumps, electric heat pump water heaters, geothermal heat pumps, and central air conditioners; qualified natural gas, propane and oil furnaces and qualified hot water boilers; and advanced main air circulating fans (a fan used in a natural gas, propane, or oil furnace).
There are certain qualifying specifications and limits associated with these items, so please contact us for an appointment to discuss the ways the nonbusiness energy property credits can affect your return.
There is also a credit available for certain vehicles purchased during 2006 and 2007 called the Hybrid Vehicle Tax Credit. Credits are allowed for the following four types of vehicles:
1. Qualified Hybrid Motor Vehicle - combines an internal combustion engine with another propulsion system that uses an onboard rechargeable energy source such as electric batteries.
2. Advanced Lean-Burn Technology Motor Vehicle - uses direct injection of a fuel mix using more air than normal (such as certain diesel engines).
3. Qualified Fuel Cell Motor Vehicle - must meet certain federal emission standards to be eligible.
4. Qualified Alternative Fuel Motor Vehicle - includes vehicles capable of running only on compressed or liquefied natural gas, liquefied petroleum gas, hydrogen or any liquid that is at least 85% methanol. Reduced credit is available for certain other fuels.
The IRS will certify the amount of the credit the purchaser of a qualifying vehicle can claim based on information provided by auto manufacturers. There is a phaseout based on the number of vehicle sales (i.e. once the manufacturer has sold over 60,000 qualifying vehicles), so it's a "first come, first served" situation. Check the IRS website to verify the portion of the credit that is still available.
Contact us for an appointment to discuss your vehicle purchase and the potential credit on your tax return.
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