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Alternative Energy Tax CreditsElectric Cars, Home Power And Heating Systems And Government Subsidies |
Alternative Energy Tax Credits
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The Federal Government offers a wide variety of tax credits for to offset
some of the money we spend on improving the energy efficiency of our homes,
reducing the use of gasoline in our cars, and generating our own electricity.
These tax credits amount to free money from the government at tax time, since
they are paid regardless of your income, and should also be exempt from the
AMT (Alternative Minimum Tax). But whatever Congress has in mind when voting
for tax credits, the system is managed by the IRS, and that means you need
to look at the tax forms and instructions if you want to know what the score
really is. I've already come across contradictions in some IRS documents,
for example, the maximum tax credit for car being lower than the line item
tax credit the IRS reports the car is worth. So before making any buying
decisions based on getting a partial refund from the government, make sure
that you do your homework and that not only does the product qualify, but
your use of it qualifies as well. For example, most of the tax credits for
vehicles requires that they be used mainly in the United States. If you live
in the U.S. but spend most of your time driving around Canada or Mexico,
it may be a problem. The idea behind this government money is to encourage
alternative energy and conservation. It breaks down into four basic areas
First, there are credits for cars that either reduce or eliminate gasoline usage. Cars that eliminate gas altogether are battery only electric motor plug-ins (but not golf carts), cars powered by fuel cells, and cars using alternative fuels, like bio-diesel. Electric plug-ins are divided between low speed neighborhood cars and true highway capable vehicles. Cars that reduce gasoline use are primarily hybrids (gasoline motor charging battery pack and helping with power) and cars that burn fuel leaner than most current models through advanced technology. Everybody just assumes that hybrid cars come with a big tax credit, but in fact, most of them no longer receive any tax break at all. That's because the credit is reduced after the manufacturer sells over 60,000 of whatever the model is, and fifteen months after quarter in which the 60,000 sales mark is reached, the credit disappears entirely. A few states, like California, also have tax credits or subsidies for purchasing electric vehicles (EV) or alternative fuel cars. Second, there are improvements made to the "envelope" of your house, ie. the structure. There's less money available for these improvements, such as windows, doors, insulation and high-tech roofing, because the government figures you probably needed to spend that money on the house anyway. Getting the credit usually requires that you buy Energy Star certified products, though in some cases, like windows, other certifications take precedence. The main difference between tax credits for energy improvements to your house's structure, and tax credits for the heating or hot water system and stuff that goes inside, is you can't get any credit for the cost of labor on the envelope improvements. So the only savings on a roofing job are a percentage of the cost of the roofing material, and the only savings on replacement windows are a percentage of the costs of the windows themselves. Since labor is usually the larger part of the cost, don't get carried away when you estimate your savings. Third, you can get money back for a wide range of appliances and efficient or alternative systems for heating your home or making hot water. Anything from a new Energy Star refrigerator to a geothermal heat pump may qualify. Solar hot water heaters, biomass stoves (wood stoves, pellet stoves, etc), and energy efficient light bulbs can all fall into this category. In some cases, like the geothermal heating system, there is no upper limit on the size of the tax credit, which is currently 30% of the cost of the system and installation labor. In other cases, there may be an upper limit to the amount of money available. You don't have to provide the paperwork proving that the items you have purchased meet the qualifications when you file your taxes, but you have to hold onto the paperwork for if you get audited. Given the amount of fraud people will probably try on such a wide open credit, I suspect the audit rate may rise. Finally, there are tax credits available for electric generating systems. The most common are solar electric (photovoltaic) and windmills, but fuel cells also qualify if they meet certain generation requirements. Generating electricity for your own use is one thing, but if you start selling it to the utility, the credit may be reduced or eliminated, so read the latest guidelines for your particular system closely. When you start looking at the numbers for home power generation with photovoltaics or windmills, remember that being attached to the grid is a huge advantage in overall system cost because it allows you to operate without battery backups, which can end up costing as much as the generation equipment.
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