In
the News
The Energy Policy Act of 2005 What the Energy
Bill Means to You
The Energy Policy Act of 2005 (EPACT), signed by
President Bush on August 8, 2005, offers consumers and businesses
federal tax credits beginning in January 2006 for purchasing
fuel-efficient hybrid-electric vehicles and energy-efficient
appliances and products. Most of these tax credits remain in effect
through 2007.
Buying and driving a fuel-efficient vehicle and
purchasing and installing energy-efficient appliances and products
provide many benefits such as better gas mileage – meaning lower
gasoline costs, fewer emissions, lower energy bills, increased
indoor comfort, and reduced air pollution.
Some consumers will also be eligible for utility
or state rebates, as well as state tax incentives for
energy-efficient homes, vehicles and equipment. Each state’s energy
office web site may have more information on specific state tax
information.
About Tax Credits A tax credit is generally more
valuable than an equivalent tax deduction because a tax credit
reduces tax dollar-for-dollar, while a deduction only removes a
percentage of the tax that is owed. Beginning in tax year 2006,
consumers will be able to itemize purchases on their federal income
tax form, which will lower the total amount of tax they owe the
government.
Automobile Tax Credits Individuals and businesses
who buy or lease a new hybrid gas-electric car or truck are eligible
for, and can receive, an income tax credit of $250-$3,400 –
depending on the fuel economy and the weight of the vehicle. Hybrid
vehicles that use less gasoline than the average vehicle of similar
weight and that meet an emissions standard qualify for the credit.
“Lean-burn” diesel vehicles could also qualify, but currently
available diesel vehicles do not meet the emissions standard. There
is a similar credit for alternative-fuel vehicles and for fuel-cell
vehicles.
If individuals and businesses buy more than one
vehicle, they are eligible to receive a tax credit for each. If a
tax-exempt organization buys such a vehicle, the retailer is also
eligible to receive another credit. Companies that buy heavy-duty
hybrid trucks are also eligible for a larger tax credit. Currently,
there is a $2,000 tax deduction for hybrid vehicles for the
remainder of 2005.
This tax credit is for vehicles “placed in
service” beginning January 1, 2006, but because there is a waiting
list for many hybrids, consumers can receive the tax credit if they
arrange to purchase the vehicle this year as long as they do not
take possession of the vehicle until January 1, 2006. This tax
credit will be phased out for each manufacturer once that company
has sold 60,000 eligible vehicles. At that point, the tax credit for
each company’s vehicles will be gradually reduced over the course of
another year.
Home Energy Efficiency Improvement Tax Credits
Consumers who purchase and install specific products, such as
energy-efficient windows, insulation, doors, roofs, and heating and
cooling equipment in the home can receive a tax credit of up to $500
beginning in January 2006.
The EPACT also provides a credit equal to 30% of
qualifying expenditures for purchase for qualified photovoltaic
property and for solar water heating property used exclusively for
purposes other than heating swimming pools and hot tubs. The credit
shall not exceed $2000.
Improvements must be installed in or on the
taxpayer’s principal residence in the United States. Home
improvement tax credits apply for improvements made between January
1, 2006 and December 31, 2007.
Business Tax Credits Businesses are eligible for
tax credits for buying hybrid vehicles, for building energy-
efficient buildings, and for improving the energy efficiency of
commercial buildings (as outlined in the Energy Policy Act of 2005).
Biodiesel/Alternative Fuels Small producer
biodiesel and ethanol credit. This credit will benefitsmall
agri-biodiesel producers by giving them a 10 cent per gallon tax
credit for up to 15 million gallons of agri-biodiesel produced. In
addition, the limit on production capacity for small ethanol
producers increased from 30 million to 60 million gallons. This is
effective until the end of 2008.
Credit for installing alternative fuel refueling
property. Fueling stations are eligible to claim a 30% credit for
the cost of installing clean-fuel vehicle refueling equipment, (e.g.
E85 ethanol pumping stations). Under the provision, a clean fuel is
any fuel that consists of at least 85% ethanol, natural gas,
compressed natural gas, liquefied natural gas, liquefied petroleum
gas, or hydrogen and any mixture of diesel fuel and biodiesel
containing at least 20% biodiesel. This is effective through
December 31, 2010.
Buildings Credit for business installation of
qualified fuel cells, stationary microturbine power plants, and
solar equipment. This provides a 30% tax credit for the purchase
price for installing qualified fuel cell power plants for
businesses, a 10% credit for qualifying stationary microturbine
power plants and a 30% credit for qualifying solar energy equipment.
This is effective January 1, 2006 through December 31, 2007.
Business credit of energy-efficient new homes.
This provides tax credits to eligible contractors for the
construction of a qualified new energy-efficient home. Credit
applies to manufactured homes meeting Energy Star criteria and other
homes, saving 50% of the energy compared to the EPACT standard. This
is effective January 1, 2006 through December 31, 2007.
Energy-efficient Commercial building deduction.
This provision allows a tax deduction for energy-efficient
commercial buildings that reduce annual energy and power consumption
by 50% compared to the American Society of Heating, Refrigerating,
and Air Conditioning Engineers (ASHRAE) 2001 standard. The deduction
would equal the cost of energy-efficient property installed during
construction, with a maximum deduction of $1.80 per square foot of
the building. Additionally, a partial deduction of 60 cents per
square foot would be provided for building subsystems.
Energy-efficient appliances - This provides a tax
credit for the manufacturer of energy-efficient dishwashers, clothes
washers, and refrigerators. Credits vary depending on the efficiency
of the unit. This is effective for appliances manufactured in 2006
and 2007.
Below is a table of anticipated tax savings and
energy savings for energy-efficient home improvements (as of
November 2005):
Product Category |
Product Type |
Tax Credit Specification |
Tax Credit |
Windows |
Exterior Windows |
Meet 2000 IECC & Amendments |
10% of cost not to exceed
$200 total |
Skylights |
Meet 2000 IECC & Amendments |
10% of cost not to exceed
$200 total |
Exterior Doors |
Meet 2000 IECC & Amendments |
10% of cost not to exceed
$500 total |
Roofing |
Metal Roofs |
Energy Star qualified |
10% of cost not to exceed
$500 total |
Insulation |
Insulation |
Meet 2000 IECC & Amendments |
10% of cost not to exceed
$500 total |
HVAC |
Central AC |
EER 12.5/SEER 15 split
Systems EER 12/SEER 14 package systems |
$300 |
Air source heat pumps |
HSPF 9 EER 13 SEER 15 |
$300 |
Geothermal heat pump |
EER 14.1 COP 3.3 closed loop
EER 16.2 COP 3.6 open loop
EER 15 COP 3.5 direct expansion |
$300 |
Gas, oil, propane water
heater |
Energy Factor 0.80 |
$300 |
Electric heat pump water
heater |
Energy Factor 2.0 |
$300 |
Gas, oil, propane furnace or
hot water boiler |
AFUE 95 |
$150 |
Advanced main air
circulating fan |
No more than 2% of furnace
total energy use |
$50 |
Copyright © 2006 HEM Technologies, LLC. All rights reserved.

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