Energy Tax Incentives Act

Energy Tax Incentives Act
By Jim Schwartz, CPA

Congress recently passed the Energy Tax Incentives Act of 2005. This legislation provides more than $14 billion in tax breaks, primarily for businesses in the energy sector. Many of the incentives are targeted at improving the national power grid to prevent major blackouts like those in the Northeast and Midwest two years ago.
The Act also provides some incentives for individuals and businesses to make certain energy conservation or alternative energy expenditures. While these credits and deductions may not net you a significant tax break, you should consider them if you - or your business - are planning energy-efficient improvements or purchases, and want to save money while doing your part for the environment.

The Act’s key provisions include:
Individuals
Credit for energy-efficient purchases for existing homes. A new 10 percent credit is available for energy-efficient improvements and property purchases for a principal residence. This credit applies to qualifying energy-efficient items such as insulation, exterior windows, skylights and doors placed in service in 2006 or 2007. It also applies to the purchase price of home energy equipment including circulating fans, hot water boilers, heat pumps, central air conditioners, and natural gas, propane or oil combined. Within that cap, are also category limits:

 $200 for windows, skylights and doors
 $50 for fans
 $150 for furnaces and boilers
 $300 for heat pumps and air conditioners

Credit for energy-generating or storage property. Homeowners can qualify for a 30 percent tax credit by installing a solar hot water heater, electricity-generating solar equipment or a fuel cell. The maximum credit is $2,000 for the solar equipment and $500 for each 0.5 kilowatt of fuel cell capacity. This credit is available for property placed in service in 2006 or 2007 - but not for equipment used to heat swimming pools and hot tubs.

Businesses
Credit for energy-generating or storage property. Businesses are eligible for several credits ranging from 10 percent to 30 percent for purchase of qualifying solar energy property and for fuel cell and microturbine power plants in service in 2006 and 2007.

Credit for energy-efficient new homes. Contractors are eligible for a credit of $2,000 per home for new construction that meets a 50 percent energy efficiency standard, is located in the U.S. and is sold in 2006 or 2007. The Act also provides a $1,000 credit for manufactured homes that meet a 30 percent energy-efficiency standard.

Energy-efficient commercial building deduction. A deduction, based on a square-footage calculation, is available for the cost of major energy-saving improvements to commercial buildings in 2006 or 2007.

Individuals and Businesses
Alternative-fuel or clean-fuel vehicles. Credits of various amounts are available to both individuals and businesses for purchasing alternative fuel, hybrid, fuel-cell powered and advanced lean-burn technology vehicles. In some instances, by replacing deductions allowed under prior law, these credits provide greater incentives for qualifying purchases. The credits, which go into effect on various dates, may also apply to leased vehicles. Purchase or lease must be after 2005, but can be as late as 2009 or 2014, depending on the type of vehicle.

Alternative-fuel or clean-fuel vehicles. Manufacturers will get a credit for producing energy-efficient appliances such as dishwashers, washing machines and refrigerators. Though consumers were left out of this tax break, they may see a price break if manufacturers choose to pass along some of the savings.

Brown Smith Wallace wants to help you reduce your tax liability. If you have any questions regarding this new tax law and how it may affect you or your business, please contact us at one of our three locations.

Jim Schwartz, CPA is a Member at Brown Smith Wallace and co-leads the tax and accounting services group. An integral part of the client service team, Jim manages tax compliance workflow and provides tax consulting and research for clients. Schwartz can be reached at 314.983.1299 or email jschwartz@bswllc.com.

Brown Smith Wallace is the second-largest locally owned independent full-service CPA and business consulting firm in Missouri with nearly 150 employees throughout the Midwest. Through a network of offices in St. Louis, St. Charles and Chicago, Brown Smith Wallace is the only CPA and business consulting firm that makes A Measurable Difference to its clients through the execution of its six measurable differences and by putting its guarantee in writing. For more information visit www.bswllc.com or call 314.983.1288.

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