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Also, the 2007
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Being Green Can Save You Some Money, But Eco-friendly Tax Incentives Available for Limited Time Only(RIVERWOODS, ILL., January 2007) – With the fluctuating gas price at the pump and the high cost of energy for home heating and cooling, taxpayers looking to buy alternative-powered cars or make energy-efficient home improvements can also get a little help from Uncle Sam in the way of tax credits, according to CCH, a Wolters Kluwer business and a leading provider of tax and accounting law information, software and services (CCHGroup.com). Initially part of the Energy Policy Act of 2005, many of these incentives were only available for the 2006 and 2007 tax years. Late last year, however, a few of the provisions were extended through 2008. Individuals still need to get a move on, though, if they’re going to benefit from the incentives. “The tax break for energy efficient vehicles is tied to the number of vehicles the manufacturer sells; once the manufacturer reaches that number for a given model, the incentive starts to disappear – as is now the case for certain Toyota models,” said CCH Principal Tax Analyst Mark Luscombe, JD, LLM. “The faster you act on other incentives, for example, adding home insulation, the sooner you not only get the credit, but also start saving on your heating bill.” Breaks for Cars That Go the Extra Gas-free MileCar buyers can benefit through tax credits for the purchase of a variety of energy-efficient vehicles. In addition to hybrid passenger cars, SUVs and trucks, the credit also applies to vehicles 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. “Manufacturers know the calculation and can readily tell car shoppers what the credit amount is, so car buyers don’t have to worry about doing the math – at least when it comes to this part of buying a car,” said CCH Tax Analyst Mildred Carter, JD. The alternative motor vehicle credit applies to cars put into service after January 1, 2006 and applies to a broad 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 the same. 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. Credits for Hybrids Starting to Diminish Over the past year, several new gasoline-electric hybrid car and truck models were rolled out as consumer interest continued to increase. Hybrid passenger and light truck vehicles available for the credit include hybrid versions of the Chevrolet Silverado, Ford Escape, GMC Sierra, Saturn Vue, Honda Accord, Honda Civic, Honda Insight, Lexus RX400, Lexus GS, Mercury Mariner, Saturn Vue, Toyota Camry, Toyota Highlander and Toyota Prius – although the Toyota models are now only eligible for a reduced credit amount. The hybrid tax credit, which is available through 2010, is made up of two parts for lighter-weight vehicles: 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 full credit should come in at about $1,500, depending upon the vehicle chosen,” said Carter, adding as an example that the qualifying Honda Civic can provide a credit of up to $2,100 while the qualifying Saturn Vue offers a $650 credit. However, as the manufacturer reaches production limits outlined by the law, the credit a car buyer can take is reduced. Beginning with the second quarter after the first 60,000 vehicles have been sold, taxpayers may only take a reduced credit, which phases out completely after the fifth quarter after 60,000 vehicles have been sold. Toyota models have already reached the reduced credit thresholds given the earlier availability and popularity of these vehicles. Individuals that bought or leased Toyota qualified vehicles, including certain Lexus models, before October 1, 2006 are eligible for the full tax credit. Those that acquired their vehicle after that date through March 31, 2007 can only claim 50 percent of the full credit and those acquiring the vehicle on or after April 1, 2007 through September 30, 2007 will only be able to claim one-fourth the full credit. No credit will be available for these Toyota vehicles acquired after September 30, 2007. 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 2006, taxpayers had the option of almost two dozen models of alternative fuel vehicles that were not hybrids, including the 2007 Honda Civic GX, which operates solely on compressed natural gas, and became available in late 2006. Buyers of these vehicles can receive as much as a $4,000 tax credit in the year they purchase the vehicle. This credit also is good through 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. Homeowners Take Credit for Energy-saving ImprovementsHomeowners and homebuyers who implemented energy-saving improvements in 2006 or plan to do so in 2007, or 2008 in some cases, also can benefit from tax credits. 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. These 30-percent credits were initially available for tax years 2006 and 2007, but has now been extended through 2008. Available for only 2006 and 2007 are credits homeowners can receive for making energy-efficient improvements to existing homes. 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. Homeowners Receive Indirect Benefits from Energy Conscious Contractors and Appliance ManufacturersHomebuyers also 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 energy 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. This credit was initially available for tax years 2006 and 2007, but has been extended through 2008. “In a competitive real estate market, new home builders are looking at all types of incentives to attract homebuyers, being able to market a home as energy efficient – and passing some of the tax saving credits on to the homebuyer – is one way to gain the interest of environmentally focused home buyers,” Luscombe said. 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. “Manufacturers may choose to pass some of the credit savings on to buyers of their appliances, and consumers ultimately benefit if manufacturers produce more efficient appliances because they end up saving money on their energy bills over the long haul,” Luscombe said. About CCH, a Wolters Kluwer businessCCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax and accounting law 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 global information services and publishing company. The company provides products and services for professionals in the health, tax, accounting, corporate, financial services, legal and regulatory, and education sectors. Wolters Kluwer has annual revenues (2005) of €3.4 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. Its shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. For more information, visit www.wolterskluwer.com. -- ### -- nb-07-04
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