National Driller August 2005 e-Newsletter

Consumers should be able to save energy and money, too, if they're in a position to take advantage of provisions of the nation's new energy law, according to CCH INC. (CCH), a provider of tax and accounting information, software and services.

The Energy Policy Act of 2005 provides more than $14.5 billion in tax breaks -- the overwhelming preponderance going to businesses -- over a 10-year period to boost conservation efforts, increase domestic energy production and expand the use of alternative energy sources such as solar, wind, ethanol, bio-mass and clean-coal technology.

But some consumers also will benefit, notes Mark Luscombe, CCH principal federal tax analyst. "The bulk of the tax benefits will go to energy-related businesses and commercial users of energy, but homeowners, home purchasers, car buyers and consumers in general stand to benefit as well, either through tax credits or through the greater availability and affordability of energy-efficient homes and appliances," Luscombe says.

Breaks for Vehicle Buyers

Car buyers can benefit through tax credits for the purchase of a variety of energy-efficient vehicles, not all of which are currently available to the general public. The credit replaces a less generous tax deduction. In addition to familiar hybrid passenger cars and SUVs, the credit also applies to cars and trucks powered by fuel cells, advanced "lean burn" diesel and other alternative power sources.

The size of the credit varies depending on the weight class of the vehicle, its fuel economy and lifetime fuel savings. For example, a hybrid SUV weighing less than 8,500 pounds that is 200 percent as fuel-efficient as a 2002 model would qualify for a credit of $1,600. It also could qualify for an additional "conservation credit" based on projected lifetime fuel savings - up to $1,000 for a lifetime fuel savings of 3,000 gallons or more.

The credits will be available beginning next year and run through 2010 for lean burn vehicles, advanced fuel vehicles and hybrid cars and light trucks. The credit for hybrid medium and heavy trucks ends after 2009. The credit for fuel cell vehicles extends to the end of 2014.

"Buyers should note that purchases made this year will not qualify for these new credits, so buyers should time their purchase accordingly," Luscombe notes.

Credits for Homeowners

Homeowners and homebuyers can benefit in a number of ways from the new law during the next two years.

Homeowners can get a tax credit for 30 percent of the cost of buying and installing residential solar water heating and photovoltaic equipment. The maximum credit is $2,000, and solar water heaters for swimming pools and hot tubs do not qualify.

Homeowners who make energy-efficient improvements to existing homes can qualify for a 10-percent tax credit. Qualifying improvements include such things as insulation, metal roofs coated with heat-reducing pigments and energy-efficient windows, doors and skylights. The maximum credit is $500.

Other items that meet certain criteria qualify for the credit with specific limitations. Some electric and geothermal heat pumps qualify for up to a $300 credit. The credits can be taken on 2006 and 2007 returns, but the total credits for the two years cannot exceed the $500 maximum. "Once again, people wanting to take advantage of the new credits should delay their purchases until 2006," Luscombe warns.

Benefits for Contractors

There also is business tax credit for the construction of new energy efficient homes. Contractors and other suppliers installing energy-efficient heating and cooling appliances and other items in new homes are eligible for a new credit up to either $1,000 or $2,000 per dwelling unit, depending on the degree of energy efficiency. The $1,000 credit is for improvements of 30 percent over the energy consumption by a comparable dwelling unit; $2,000 for a 50-percent improvement. Manufactured homes qualify for the credit but with some additional limitations. Like the credits for homeowners, this credit expires after 2007.