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DILLON - When it comes to energy efficiency, the usual refrain is, "There's no time like the present."
But if you want to take advantage of new sweeping federal tax breaks for making your immediate world a bit greener, tax pros suggest you wait until Jan. 1 to buy that new hybrid car or solar-powered water heater.
Starting in 2006, a new tax law called the Energy Tax Incentive Act of 2005 kicks in, which allows for a variety of new tax credits people can claim if they make improvements around the house (and in the garage) that save energy.
There are essentially three categories of new energy-centric tax credits for 2006 - write-offs for making home improvements that increase energy efficiency, for installing solar technology, and for buying new hybrid automobiles.
The timing to take advantage of the new tax credits, however, is important.
"If you're going to (make energy efficiency improvements) this year, you're going to miss out," explains Geoffrey Stacey, a Certified Public Accountant with GLS, Inc. in Dillon. "If you wait a few more months, and get your stuff done next year or the year after that, you'll be able to take advantage of some significant tax breaks."
By significant, Stacey means the new tax credits are "dollar-for-dollar," as opposed to tax deductions which are simply deductions against your average tax rate. For example, if your average tax rate is 7 percent, and you spend $100 that is deductible, you'll save just $7 on your tax bill. With tax credits, if you owe a $100 tax liability, a $100 tax credit wipes out your entire bill.
"The whole idea is to get people to be more energy efficient, and you get a nice tax credit to boot," Stacey added.
The three categories that will earn you a tax credit
Under the new law, the first category in which you can earn a tax credit is "home improvement" - making changes to your home to make it more of an energy saver.
The maximum credit (per tax year) under this category is $500, but there are some specifics as to what exactly you can do to get to that $500 number. First, a credit of up to $300 can be realized after buying "residential energy efficient property" - or, in English - big ticket items like water heaters, electrical heat pumps, geothermal heat pumps, or improved air conditioning systems.
That leaves $200 which can be earned as a tax credit under the home improvement category, and that can be realized in two ways. By replacing old window components, you can be credited up to $200. Or, homeowners can be credited for 10 percent of what they spend on "residential energy property expenditures" - which are pretty much any other home improvements that lead to greater energy efficiency. In other words, if you spend $2,000 on new insulation, caulking, window plastic or new doors, you'll earn a $200 tax credit.
The second category under the new law covers solar energy improvements. Here, there are also a number of subcategories (three, to be exact), but homeowners who build solar technology into their homes can earn a $2,000 tax credit for each category. Only two, however, are realistic for the average homeowner.
The first realistic subcategory is "solar water heating property," and up to $2,000 can be credited for installing water heaters that run off of solar power. There is one caveat: solar heaters that are used to heat pools or hot tubs don't count toward the credit.
The second realistic solar subcategory is for "photovoltaic property" - or installing solar panels that create electricity from sunlight. A credit of $2,000 can be realized for installing these systems as well.
With both of these types of solar equipment, you can include installation costs as part of the total you wish to get credit for. Also, if this credit goes unused in 2006, taxpayers can carry the credit over to apply to 2007.
Lastly, buying a hybrid gas-electric car in 2006 can earn you a big tax credit, too. The new "hybrid motor vehicle credit" is actually divided into two parts. The first is based on fuel economy of the new vehicle, and the law allows for a credit of anywhere from $400 to $2,400 - depending on the specifics of your new hybrid car's fuel economy numbers.
The second component is based on "lifetime fuel savings" and it's based on speculation about how much fuel with be saved over the long-term. The range of this credit is from $250 to $1,000.
To determine exactly how much you'll be credited for your new hybrid ride, your tax professional can calculate the amount after the dealer provides all the relevant savings information.
As with any new law, the devil really is in the details, and this new law certainly has it's fair share of minutiae. Tax professionals like Geoffrey Stacey at GLS, Inc. can help wade through the specifics ... reach him at (970) 668-5694.
Duffy Hayes can be reached at (970) 668-3998, ext. 250, or at dhayes@summitdaily.com
But if you want to take advantage of new sweeping federal tax breaks for making your immediate world a bit greener, tax pros suggest you wait until Jan. 1 to buy that new hybrid car or solar-powered water heater.
Starting in 2006, a new tax law called the Energy Tax Incentive Act of 2005 kicks in, which allows for a variety of new tax credits people can claim if they make improvements around the house (and in the garage) that save energy.
There are essentially three categories of new energy-centric tax credits for 2006 - write-offs for making home improvements that increase energy efficiency, for installing solar technology, and for buying new hybrid automobiles.
The timing to take advantage of the new tax credits, however, is important.
"If you're going to (make energy efficiency improvements) this year, you're going to miss out," explains Geoffrey Stacey, a Certified Public Accountant with GLS, Inc. in Dillon. "If you wait a few more months, and get your stuff done next year or the year after that, you'll be able to take advantage of some significant tax breaks."
By significant, Stacey means the new tax credits are "dollar-for-dollar," as opposed to tax deductions which are simply deductions against your average tax rate. For example, if your average tax rate is 7 percent, and you spend $100 that is deductible, you'll save just $7 on your tax bill. With tax credits, if you owe a $100 tax liability, a $100 tax credit wipes out your entire bill.
"The whole idea is to get people to be more energy efficient, and you get a nice tax credit to boot," Stacey added.
The three categories that will earn you a tax credit
Under the new law, the first category in which you can earn a tax credit is "home improvement" - making changes to your home to make it more of an energy saver.
The maximum credit (per tax year) under this category is $500, but there are some specifics as to what exactly you can do to get to that $500 number. First, a credit of up to $300 can be realized after buying "residential energy efficient property" - or, in English - big ticket items like water heaters, electrical heat pumps, geothermal heat pumps, or improved air conditioning systems.
That leaves $200 which can be earned as a tax credit under the home improvement category, and that can be realized in two ways. By replacing old window components, you can be credited up to $200. Or, homeowners can be credited for 10 percent of what they spend on "residential energy property expenditures" - which are pretty much any other home improvements that lead to greater energy efficiency. In other words, if you spend $2,000 on new insulation, caulking, window plastic or new doors, you'll earn a $200 tax credit.
The second category under the new law covers solar energy improvements. Here, there are also a number of subcategories (three, to be exact), but homeowners who build solar technology into their homes can earn a $2,000 tax credit for each category. Only two, however, are realistic for the average homeowner.
The first realistic subcategory is "solar water heating property," and up to $2,000 can be credited for installing water heaters that run off of solar power. There is one caveat: solar heaters that are used to heat pools or hot tubs don't count toward the credit.
The second realistic solar subcategory is for "photovoltaic property" - or installing solar panels that create electricity from sunlight. A credit of $2,000 can be realized for installing these systems as well.
With both of these types of solar equipment, you can include installation costs as part of the total you wish to get credit for. Also, if this credit goes unused in 2006, taxpayers can carry the credit over to apply to 2007.
Lastly, buying a hybrid gas-electric car in 2006 can earn you a big tax credit, too. The new "hybrid motor vehicle credit" is actually divided into two parts. The first is based on fuel economy of the new vehicle, and the law allows for a credit of anywhere from $400 to $2,400 - depending on the specifics of your new hybrid car's fuel economy numbers.
The second component is based on "lifetime fuel savings" and it's based on speculation about how much fuel with be saved over the long-term. The range of this credit is from $250 to $1,000.
To determine exactly how much you'll be credited for your new hybrid ride, your tax professional can calculate the amount after the dealer provides all the relevant savings information.
As with any new law, the devil really is in the details, and this new law certainly has it's fair share of minutiae. Tax professionals like Geoffrey Stacey at GLS, Inc. can help wade through the specifics ... reach him at (970) 668-5694.
Duffy Hayes can be reached at (970) 668-3998, ext. 250, or at dhayes@summitdaily.com
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