Federal Energy Tax Credits

Tax credits, any tax credits, are extremely valuable because they lower the bottom-line tax bill on a dollar-for-dollar basis. Beginning with the 2006 tax year, private consumers and companies will be able to claim tax credits for purchases and expenses of energy-saving items and equipment. The Energy Policy Act of 2005 provides federal tax credits for the purchase of fuel-efficient hybrid vehicles, energy-efficient appliances and other products. The majority of these tax credits are currently set to remain in effect through the end of 2007.

Individuals and businesses who lease or purchase a new hybrid gas/electric-powered cars or trucks may be eligible to receive a tax credit ranging from $250 to $3,400, depending upon the vehicle's weight and fuel economy. Only those hybrid vehicles which consume less gasoline than the average vehicle of similar weight and meet emissions standards will qualify for the credit. Similar tax credits are available for alternative fuel- and fuel cell-powered vehicles.

If more than one eligible vehicle is purchased – by either individuals or companies -- the tax credit can be fully claimed for each one. Businesses which buy heavy-duty hybrid trucks may be eligible for larger credits. In addition, retailers who sell hybrid cars or trucks to tax-exempt organizations are also eligible to receive a tax credits.

In addition, the new legislation provides energy tax credit options for homeowners. Credits of up to $500 can be claimed by those who purchase and install specific qualifying products, such as energy-efficient insulation, doors, windows, roofs, or heating and cooling units. A credit of up to $2,000 is also available for the purchase of qualifying photovoltaic- and solar water heating equipment, as long as the equipment is not used for the heating of swimming pools or hot tubs. All improvements must be installed in or on the homeowner's primary residence, and that residence must be located in the United States.

In addition to the tax credits for hybrid vehicles, businesses may also benefit from tax credits for building new energy-efficient buildings as well as improving the energy efficiency of their current commercial properties. Other tax credits are available to specialized companies which are in the business of providing alternative sources of energy. One such is the Alternative Fuel Vehicle Refueling Property Credit. Currently available through December 31, 2010, this credit can be taken by fueling stations for up to thirty percent of the cost of installing clean-fuel vehicle refueling equipment (for example, E85 ethanol pumping stations).

The small agri-biodiesel producer credit gives small agri-biodiesel companies a 10 cent per gallon tax credit for up to fifteen million gallons of agri-biodiesel fuel produced. The small ethanol producer credit, like the agri-biodiesel credit, provides a 10 cent per gallon credit for the first fifteen million gallons of fuel produced. The production capacity limit, however, for small ethanol producers has been raised from thirty million to sixty million gallons per year. These credits are currently in effect through the year 2008.

For further information on these and other federal tax credits, go to www.IRS.gov.