2012 CCH Whole Ball of Tax
Saving Money at Tax Time and Beyond by Going Green
CCH Looks at Benefits of Energy-efficient Home Improvements, Auto Purchases
Note: The below text was updated on March 29, 2012
(RIVERWOODS, ILL., January 2012) – Improving energy efficiency at home can help the environment and potentially save homeowners money during tax season. CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com), takes a look at ways to save by taking advantage of energy-efficiency tax breaks on 2011 returns.
Under the American Recovery and Reinvestment Act of 2009 (ARRA) and as extended and modified by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act of 2010), provisions are still in place to encourage homeowners to reduce their taxes by investing in environmentally friendly home improvements. Tax savings are also available for those who purchase fuel-efficient vehicles that qualify for tax breaks.
“Energy related tax breaks tied to ARRA are still available, but some of the terms may have changed,” said CCH Senior Federal Tax Analyst Mildred Carter, JD.
“As the national focus grows for expanding development and production of alternative energy sources and products, it makes sense for taxpayers to take an interest in energy-efficient purchases that can pay off in the short- and long-term.”
Tax Breaks for Homeowners, Condo Owners
The two main energy credits available to homeowners are the Nonbusiness Energy Property Credit and the Residential Energy Efficient Property Credit, both claimed on Form 5695, Residential Energy Credits. While the names sound similar, the rules and what they cover are quite different.
Under the Tax Relief Act of 2010, the Nonbusiness Energy Property Credit is a 10-percent credit for qualified energy efficiency improvements and 100 percent credit for residential energy property expenditures and has a lifetime limit of $500, of which only $200 may be used for windows, changed from the 30-percent credit and $1,500 limit during 2009 and 2010 under ARRA. It applies to the installation of insulation and energy-efficient exterior windows and doors, heat pumps, furnaces, central air conditioners and water pumps. Qualifying improvements must have been completed in the taxpayer’s principal residence located in the United States before January 1, 2012.
“Pre-ARRA, homeowners were also only allowed a 10-percent credit to a maximum of $500 during 2006 and 2007 and the credit disappeared for 2008,” Carter said. “ The credit can also be claimed for the cost of residential energy property, including labor costs for installation.”
Under the Residential Energy Efficient Property Credit, homeowners can receive a credit of 30 percent of the cost for the installation of alternative energy equipment in their home. The credit is for eligible solar water heaters, solar electricity equipment, fuel cell plans, qualified small wind energy property and qualified geothermal heat pumps. This credit applies for tax years 2009 through 2016.
Check for Certification
However, not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer’s website or the product packaging.
“Those who own a single-family home or condominium unit may apply for this credit,” said Carter. “Condo owners can claim the credit by splitting the equipment installation cost with other unit owners and claiming the appropriate amount based on the divided cost.”
Added Incentives for Energy-efficient Appliance Purchases
ARRA provides an added boost to states to encourage residents to purchase energy-efficient appliances. Under ARRA, nearly $300 million in funding was made available for state-run rebate programs for consumer purchases of new ENERGY STAR® qualified home appliances. Dubbed “cash for appliances,” most of these programs began in 2010 and are not tied directly to a tax benefit for purchasers. Some state programs expired prior to 2011. All programs closed as of February 17, 2012. However, manufacturers of energy-efficient appliances are allowed a tax credit through 2011.
States already offering tax breaks for energy-conscious residents include Connecticut, which provides a sales and use tax exemption for solar energy electricity generating systems, certain energy-efficient appliances, compact fluorescent light bulbs, as well as certain residential weatherization products. Massachusetts, Minnesota, New Jersey and Wyoming also exempt certain solar- or wind-powered equipment from sales and use or property tax year round.
Many states also offer “sales tax holidays” for energy-efficient products including: Maryland, Missouri, North Carolina, Texas and Virginia.
Alternative Motor Vehicle Credit
Taxpayers may be able to take this credit if they bought a qualified fuel cell vehicle in 2011. The credit is also allowed for the cost of converting a vehicle to a qualified plug-in electric drive vehicle. Ordinarily the amount of the credit is 100 percent of the manufacturer’s (or domestic distributor’s) certification of the maximum credit allowable. However, the credit for converting a vehicle to a qualified plug-in electric vehicle is the smaller of $4,000 or 10 percent of the cost of the conversion. To take the credit, Form 8910 must be completed.
The credit has expired for advanced lean burn technology vehicles, qualified hybrid vehicles and qualified alternative fuel vehicles purchased after 2010. This means that taxpayers cannot claim the credit on their 2011 tax returns for these vehicles.
Plug-in Electric Drive Motor Vehicle Credit
This credit may be taken if a taxpayer placed in service for business or personal use a qualified plug-in electric drive motor vehicle in 2011. The credit ranges from $2,500 to $7,500. It depends on certain factors, such as battery capacity, determining the value of the credit. For example, there is an additional $200 of credit for each added kilowatt-hour after the minimum 4 kilowatt-hours required.
The manufacturer’s certification can be relied on to determine that a vehicle qualifies for the credit. In the case of a foreign manufacturer, the domestic distributor’s certification can generally be relied on. The Qualified Electric and Plug-in Electric Vehicle Credit is taken on IRS Form 8834.
Plug-in Electric Vehicle Credit
For this credit, the vehicle can have 2, 3 or 4 wheels. A vehicle with 4 wheels must be a low-speed vehicle. Qualified plug-in electric vehicles must be propelled to a significant extent by an electric motor that draws electricity from a battery that can be recharged from an external source of electricity and has a capacity of not less than 2.5 kilowatt hours if the vehicle has 2 or 3 wheels; or 4 kilowatt hours if the vehicle has 4 wheels.
The credit is 10 percent of the cost of the vehicle, limited to $2,500 per vehicle. The credit is taken on Form 8834.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. CCH is based in Riverwoods, Ill. Wolters Kluwer is a leading global information services and publishing company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands (www.wolterskluwer.com).