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Earlier this month President Bush signed the Energy Tax Incentives Act of 2005.
The new law has some incentives for consumers which all come in the form of tax
credits. A credit lowers your federal income tax bill dollar for dollar, while
a deduction lowers just the amount you are taxed.
Below is what SmartMoney.com outlined the new energy bill may mean for you and
your members' cars and homes. After all we are all consumers!
Taking Tax Credit To The Road
Under current IRS regulations, you can claim a deduction for buying a qualifying
new, classified, clean-fuel vehicle, including a hybrid gas-electric vehicle like
the Ford Escape or Toyota Prius. These cars and other such models will entitle
you to a $2,000 write-off on this year's Form 1040.
You might be better off waiting until 2006 to get yourself a new energy-efficient
vehicle. This is because the 2005 Energy Act repeals the current deduction effective
after this year. The new law replaces that deduction with four new tax credits
that could save you substantially more at return-filing time.
Credit No. 1 for Hybrid Vehicles: Qualified “hybrid” vehicles combine an internal combustion engine with another
propulsion system that relies on an onboard rechargeable energy source like electric
batteries. The credit for hybrid cars and trucks (with gross vehicle weight ratings of 8,500
pounds or less) has two parts. The first part is a “fuel economy credit.” This
credit can range between $400 and $2,400, based on fuel-efficiency improvements
in comparison with 2002 model-year vehicles. The second part is a "conservation
credit." This credit ranges between $250 and $1,000, and is based on expected
fuel consumption reductions over the life of the vehicle. The minimum combined
credit for a hybrid vehicle that's eligible for both the fuel economy part of
the credit and the conservation part will be $650; the maximum combined credit
will be a whopping $3,400.
Credit No. 2 for Lean-Burn Technology Vehicles: What are being called "lean burn" vehicles are passenger cars and trucks with
internal combustion engines that use a direct injection of a fuel mix with a higher-than-normal
percentage of air. There are even some diesel cars that will soon be introduced
in the U.S. which will qualify. The lean-burn tax credit amounts are the same as the hybrid vehicle tax credit
amounts.
Credit No. 3 for Fuel-Cell Vehicles: What are called “fuel-cell” vehicles include cars that run on hydrogen cells.
The fuel-cell credit is also made up of two parts. The first part is based on
the vehicle's weight and is a flat amount. The second part of the credit is based
on a sliding scale. The scale recounts the difference on fuel-efficiency improvements
compared with 2002 model-year vehicles. The maximum combined credit amount can
reach $12,000.
Credit No. 4 for Alternative-Fuel Vehicles: “Alternative-fuel” vehicles include cars and trucks that run on any liquid that
is at least 85% methanol. These include compressed or liquefied natural gas, liquefied
petroleum gas, and hydrogen. Reduced credits are allowed for mixed-fuel vehicles
that run on a mixture of an alternative fuel and a petroleum-based fuel. The maximum
credit for autos and light trucks is $4,000.
Taking Tax Credit Home
This personal tax credit has a $500 lifetime limit. The credit applies only to
energy-saving items you put to use in your primary residence after 2005 and before
2008. This means vacation homes don't count. The credit amount equals the sum
of 10% of your expenditures for qualified energy efficiency improvements to an
existing home, plus 100% of your expenditures for qualified residential energy
property.
The 10% part of the credit for qualified energy efficiency improvements covers:
The 100% part of the credit for qualified residential energy property covers
money spent on:
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Electric heat pumps, electric heat pump water heaters, geothermal heat pumps,
and central air conditioners. The credit for these can't exceed $300.
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Natural gas, propane and oil furnaces, and qualified hot-water boilers. The
credit for these can't exceed $150.
- Advanced main air circulating fans. The credit for these can't exceed $50.
Other Residential Energy Equipment
You can also collect a completely separate personal tax credit equal to 30% of
the cost of:
This credit applies only to equipment put to use in your personal U.S. residence
after Dec. 31, 2005, and before 2008.
Note, you can't claim the credit for equipment used to heat a swimming pool or
hot tub.
