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Do Good for the Planet, Do Well for Yourself(RIVERWOODS, ILL., January 2006) – This year, you can help save the environment and trim your taxes at the same time, according to CCH, a Wolters Kluwer business and a leading provider of tax and accounting law information, software and services (tax.cchgroup.com). In the Energy Policy Act of 2005, Congress made it easier to be environmentally virtuous by offering tax credits for cars that pollute less and homes that require less fossil fuel to heat, cool and light, but the favorable provisions are not for procrastinators. “In last year’s legislation, Congress created a lot of incentives, but made many of them effective only for 2006 and 2007. People interested in taking advantage of these tax breaks should research them now and make sure they take advantage of them before it’s too late,” said Mark Luscombe, JD, CPA and CCH principal federal tax analyst. Breaks for Car BuyersCar buyers can benefit through tax credits for the purchase of a variety of energy-efficient vehicles. In addition to familiar hybrid passenger cars and SUVs, the credit also applies to cars and trucks powered by fuel cells, advanced “lean burn” diesel and other alternative power sources. The size of the credit varies depending on the weight class of the vehicle, its fuel economy and lifetime fuel savings. “Fortunately, car owners probably won’t have to do a lot of math ahead of time to figure the credit. Manufacturers will most likely be happy to do the calculations for them,” said CCH tax law analyst Mildred Carter, JD. The new alternative motor vehicle credit applies to qualified vehicles put into service starting the first of this year. This credit replaces the clean-fuel vehicle deduction which allowed taxpayers to deduct up to $2,000 for qualifying hybrid gas-electric cars for the first year in which the vehicle was used. The new credit is more generous and applies to a broader base of fuel-efficient vehicles – including various models of hybrid, alternative fuel and fuel cell vehicles. To qualify, each type of vehicle has to meet particular standards, but many of the qualifications are uniform. For example, a vehicle must be new; it must be purchased or leased for use by the taxpayer and not for resale; and it must be made by an auto manufacturer. Hybrid Tax Credits For practical purposes, gasoline-electric hybrid cars and trucks are the only alternative vehicles generally available to consumers today. Hybrid passenger and light truck vehicles available for the credit include the Chevrolet Silverado 1500, Ford Escape, GMC Sierra, Honda Accord, Honda Civic, Honda Insight, Lexus RX 400, Mercury Mariner, Toyota Highlander and Toyota Prius. The new tax credit for hybrid vehicles applies to both passenger cars and trucks placed into service beginning after December 31, 2005. However, the vehicle does not have to be a 2006 model. For example, a new 2005 model purchased and first placed into service in 2006, would still qualify for the credit. The credit is made up of two parts: a fuel economy credit and a conservation credit. The fuel economy credit is calculated by comparing the fuel efficiency of the alternative fuel vehicle to that of a 2002 gasoline-only powered vehicle for city driving. That part of the credit has a range of up to $2,400 for an alternative fuel vehicle that has a fuel efficiency of 250 percent of the gas-only powered vehicle. The conservation credit is calculated by the lifetime fuel savings of the vehicle and ranges from $250 for savings of at least 1,200 gallons of gasoline to $1,000 for 3,000 gallons. “The amount of the credit will vary, based on the specific fuel economy of the car purchased. A reasonable or average credit should come in at about $1,500 to $2,250,” said Carter. For example, a Ford Escape Hybrid gets 36 miles per gallon compared to the 20 miles per gallon the gasoline model gets, so the Hybrid gets 180 percent of what the gasoline model gets. That means that the Hybrid owner could claim $1,200 for the first part of the credit. For lifetime fuel efficiency, adding just the minimum $250 conservation credit would bring the total qualified hybrid motor vehicle credit to $1,450. Although the face value of this seems less than the $2,000 deduction allowed under the old rule – it’s actually quite a bit more as a credit is always worth more than a deduction of the same amount. For example, for an individual in the 30-percent tax bracket the $2,000 deduction would only be equivalent to a $600 tax credit. However, the new credit of $1,450 in the above example would equal more than double this in tax benefits to the hybrid vehicle buyer. Congress did place limits on the credit for passenger and light truck hybrids. It is only available through 2010 and it diminishes as the vehicles become more mainstream, phasing out for both hybrid and lean-burn vehicles once a manufacturer sells 60,000 such vehicles. Beginning with the second quarter after the first 60,000 have sold, taxpayers may only take a reduced credit, which phases out completely after the fifth quarter after 60,000 vehicles have sold. Owners of heavier business-use hybrids with a gross weight of 8,500 pounds or more also are eligible for a credit. This credit is equal to an applicable percentage times the qualified incremental hybrid cost of the vehicle as certified by the manufacturer in accordance with guidance to be issued by the IRS. The credit can go up to $30,000 for vehicles with a gross weight of more than 26,000 pounds. The credit for these vehicles is available only through 2009. Credits for Other Alternative Fuel Vehicles Alternative fuel vehicles that operate on natural gas, liquefied natural gas, liquefied petroleum or 85-percent methanol alcohol also qualify for the credit. In 2005, taxpayers had the option of almost two dozen models of alternative fuel vehicles that were not hybrids. For these same models, the 2005 Energy Act provides up to $4,000 in tax savings through the credit, which will expire on December 31, 2010. Although still not readily available today, fuel cell vehicles – powered by hydrogen and hydrogen fuel cells – also qualify for a two-part credit. This credit is based on weight class and fuel economy with a vehicle weighing 8,500 pounds or less qualifying for a weight class credit of $8,000 plus a potential fuel economy credit of up to $4,000. The credit for fuel cell vehicles is available through 2014. Credits for HomeownersHomeowners and homebuyers can benefit in a number of ways from the new law during the next two years. Homeowners can get a tax credit for 30 percent of the cost of buying and installing residential solar water heating and photovoltaic equipment. The maximum credit is $2,000 for each type of solar system. Solar water heaters for swimming pools and hot tubs do not qualify. The 30-percent credit also applies to homeowners who install fuel cells to supply electricity. The maximum credit is $500 for each .5 kilowatt of capacity. The 30-percent credit expires at the end of 2007. However, it’s not clear whether home fuel cells will be commercially available by then. Homeowners who make energy-efficient improvements to existing homes can qualify for a tax credit. Qualifying improvements include 10 percent of the cost of such things as insulation, metal roofs coated with heat-reducing pigments and energy-efficient windows, doors and skylights. The maximum credit is $500, but only $200 can come from expenses for windows. The cost of labor is not counted in figuring this credit. Other items that meet certain criteria qualify for credits that have specific dollar limitations. One hundred percent of the cost, including labor cost, is counted in figuring these credits. Advanced main air circulating fans qualify for up to a $50 credit; qualifying natural gas, propane or oil furnace or hot water boilers are eligible for up to a $150 credit; and some electric and geothermal heat pumps qualify for up to a $300 credit. The credits can be taken on 2006 and 2007 returns, but the total credits for the two years cannot exceed the $500 maximum. Indirect Benefits for Home, Appliance BuyersHome buyers may benefit indirectly from a business tax credit for the construction of new energy efficient homes. Contractors and other suppliers installing energy-efficient heating and cooling appliances and other items in new homes built on-site are eligible for a new credit up to $2,000 per dwelling unit if they achieve evergy savings of at least 50 percent over a comparable dwelling unit. Manufactured homes qualify for the same credit if they meet the 50-percent standard, but alternatively can qualify for a $1,000 credit if they achieve a 30-percent improvement. “The credit goes to the home builder, rather than the homeowner, but builders may pass the credit through to purchasers, who would end up with a more energy-efficient house than they otherwise could afford,” Luscombe observed. Like the credits for homeowners, this credit expires after 2007. A similar indirect benefit may be provided by a manufacturers’ tax credit for energy-efficient dishwashers, clothes washers and refrigerators manufactured in 2006 and 2007. “The goal is to encourage manufacturers to offer more efficient and cheaper appliances that will also save consumers money on their energy bills over the long haul,” Luscombe said. Energy-efficient homes may also qualify for a “green” mortgage. This is a mortgage in which a home’s energy savings is figured into the calculations that determine whether someone can afford to buy it. The home’s lower utility bills mean that more of a homeowner’s income can be devoted to mortgage payments. Green mortgages have been around for some time, but their acceptance by Fannie Mae promises to make them more widely available. “This can make an energy-efficient home more affordable, so people shopping for a home should inquire whether green mortgages are available when they look for a lender,” Luscombe said. About CCH, a Wolters Kluwer businessCCH, a Wolters Kluwer business (tax.cchgroup.com) is a leading provider of tax, audit and accounting information, software and services. It has served tax, accounting and business professionals and their clients since 1913. Among its market-leading products are The ProSystem fx® Office, CCH® Tax Research NetWork™, Accounting Research Manager™ and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Wolters Kluwer is a leading multinational publisher and information services company. Wolters Kluwer has annual revenues (2004) of €3.3 billion, employs approximately 18,400 people worldwide and maintains operations across Europe, North America and Asia Pacific. Wolters Kluwer is headquartered in Amsterdam, the Netherlands (www.wolterskluwer.com). Its depositary receipts of shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. -- ### -- nb-06-05
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