With America’s focus on becoming more energy-efficient and independent, Congress has made several modifications to the Internal Revenue Code over the last several years by putting in place “green” tax incentives, hoping these will encourage people to become “green” themselves. As April 15th is quickly approaching, now is the time to be aware of what “green” tax incentives may be available to you.
Electric Vehicles. In the Emergency Economic Stabilization Act of 2008, a new credit was provided to a purchaser of a new qualified Plug-in Electric Drive Motor Vehicle (PEDMV). The credit is available for PEDMVs placed in service after December 31, 2008 and before January 1, 2015. The credit is only available to the original purchaser of a new qualifying vehicle. Therefore, if you lease a PEDMV, you are not eligible to claim the credit. The amount of the credit is $2,500, with an additional credit allowed based on the amount of kilowatt hours of traction battery capacity of the vehicle. In general, the maximum credit is $7,500, and this tax credit can be used to reduce both regular tax and alternative minimum tax.
Hybrid Vehicles. An additional “green” vehicle tax incentive is the Qualified Hybrid Motor Vehicle Credit that is a component of the Alternative Motor Vehicle Credit. This credit is allowed for new passenger automobiles, light trucks and other hybrid motor vehicles that are placed in service before January 1, 2011. The maximum amount of credit is based on the number of vehicles sold by the manufacturer and can be found on the IRS website, along with a list of qualifying vehicles. Another limitation is that the credit cannot exceed the excess regular tax over tentative minimum tax.
Mixed-Fuel Vehicles. Similar to the Hybrid Motor Vehicle Credit is a reduced Alternative Fuel Motor Vehicle Credit for new “mixed-fuel vehicles” purchased before January 1, 2011. The credit is based on the percent of mixed fuel used by the vehicle. For example, a 75/25 qualifying mixed-fuel vehicle would receive 70 percent of the credit allowed. A 75/25 mixed-fuel vehicle is one where at least 75 percent of the fuel is an alternative fuel, discussed later in this article, and not more than 25 percent is a petroleum-based fuel. A list of these vehicles can also be found on the IRS website. The credit cannot exceed the excess of regular tax over tentative minimum tax.
Sales Tax. Another vehicle tax incentive includes a sales tax deduction for new vehicle purchases. Although this incentive is not directly related to a “green” vehicle, most new vehicles are more environmentally friendly than those manufactured in the past. The sales tax deduction applies to purchases after February 16, 2009 and before January 1, 2010. The deduction is limited to the sales tax on up to $49,500 of a new vehicle’s purchase price. The deduction is allowed whether or not the taxpayer itemizes. However, the deduction is not allowed for a taxpayer who itemizes and takes the deduction for state and local sales taxes instead of the deduction for state and local income taxes.
NONBUSINESS ENERGY PROPERTY
The American Recovery and Reinvestment Tax Act of 2009 reinstated the credit for Nonbusiness Energy Property (CNEP) for eligible property placed in service after December 31, 2008 and before January 1, 2011. Energy-efficient improvements that qualify include new insulation, exterior windows and doors, metal or asphalt roofs treated to reduce heat loss, and certain water heaters, furnaces and air conditioners installed on a principal residence on or before December 31, 2010. The tax law changes increased the credit from 10 to 30 percent of qualifying expenses, to a maximum credit amount for 2009 and 2010 of $1,500. Furthermore, the changes eliminated the lifetime limit on the credit. This tax credit can be used to reduce both regular tax and alternative minimum tax for 2009.
RESIDENTIAL ENERGY EFFICIENT PROPERTY
The American Recovery and Reinvestment Tax Act of 2009 enhanced the Residential Energy Efficient Property (REEP) Credit. The credit is allowed for qualified expenditures spent on property that produces energy for your home, including expenditures for small wind energy, solar electric property and a geothermal heat pump. The credit has been expanded through 2016 and can also apply to your vacation home. The maximum credit for fuel cell property is unchanged at $500 for each kilowatt of capacity. The tax law changes, however, did remove the maximum credit for solar energy, small wind energy and geothermal heat pumps purchased for tax years beginning after December 31, 2008. This tax credit can be used to reduce both regular tax and alternative minimum tax for 2009.
ALTERNATIVE FUELING PROPERTY
The American Recovery and Reinvestment Tax Act of 2009 increases the Credit for Alternative Fuel Vehicle Refueling Property for individuals and businesses. The original use of qualifying property must begin with the taxpayer, and the definition excludes buildings and structures. The property must be used for either storing or dispensing alternative fuel. Alternative fuels are made up of at least 85 percent ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas or hydrogen. For individuals, the credit increases to 50 percent for 2009 and 2010, with a maximum credit of $2,000. For hydrogen refueling property, the 30-percent rate remains the same, but the maximum credit limit is increased to $200,000. Another limitation is that the credit can not exceed the excess of regular tax over tentative minimum tax.
With all of these income tax incentives, it makes it that much easier to go “green” and help the environment. Please consult your personal tax advisor to take advantage of these exciting “green” tax incentives. iBi