energy tax incentives
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Earned Income Tax Credit Can Put Money in Your Pocket by Todd Ware, VP/CFO of The Energy Cooperative
You could be cheating yourself at tax time, even if you are not required to file a tax return. The IRS estimates one in four eligible taxpayers will overlook the Earned Income Tax Credit – or EITC – worth up to $5,600 or more this year.
EITC is a refundable tax credit, meaning you can get money back even if you owe no federal income tax or had no tax withheld. And, if you owe tax, it can offset the amount you must pay.
The credit has been making the lives of working people a little easier for 35 years. Yet it remains little known, possibly because people move into and out of eligibility as their financial, marital and parental statuses change.
Unlike other tax credits, EITC is based on several factors such as the source and amount of your income, or combined income if married, whether you have qualifying children and how many. Children are not required for eligibility, but they increase the amount of your credit. Through new legislation, families with three or more children can get even more money. The credit is complex, but worth exploring.
If you had less than $48,000 in income from wages, self-employment or farming in 2009, see if you qualify. Find more information at www.irs.gov, keyword: EITC. Use IRS’s online EITC Assistant to determine your eligibility and the amount of your credit, or use the worksheet in your tax instruction package.
No-cost help is available in many communities. Volunteer income tax assistance sites or IRS Taxpayer Assistance Centers will compute your EITC and prepare your return at no charge. To locate a volunteer site, call your community’s 211 or 311 number for local services or call the IRS at 1-800-906-9887. Locate an IRS Taxpayer Assistance Center in the blue pages of your telephone directoryRemember: if you are eligible, you must file a federal income tax return, even if you are not otherwise required to file, and you must specifically claim the credit to get it.
Per the IRS, rural and non-traditional families -- such as grandparents raising grandchildren -- childless workers, and Spanish-speaking taxpayers are among those who most frequently overlook the credit.
Efficiency Tax Credits Drop, but Don’t Disappear - Benefit reverts to $500 lifetime cap for upgrades
Energy efficiency improvements are great for lowering electric bills. But sometimes the up-front cost can be a drawback. Since 2005, Congress has enacted a series of tax breaks for consumers who take steps to make their homes more energy efficient. In December, the outgoing 111th Congress approved extending some popular efficiency tax credits through Dec. 31, 2011, although at greatly reduced levels.
"While we were hopeful that the tax credits would be higher than what was approved, we are encouraged that this valuable incentive for homeowner investment was retained," says Brad Byrd, Director of Marketing with The Energy Cooperative.
The federal Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduces the total lifetime credit that can be claimed on energy efficiency improvements made between 2006 and 2011 (excluding 2008, when no credit was available) from $1,500 to $500. It also lowers the percentage of efficiency upgrade costs consumers can recover, from 30 percent in 2009-2010 to 10 percent in 2011.
“Basically, energy efficiency tax credits revert to levels approved for 2006 and 2007, before the federal stimulus bill pumped up the program,” explains Byrd “There’s also a lifetime cap of $500 for any work that’s done. But if you haven’t applied for an energy efficiency tax credit before, this extension gives you a chance to recoup some of the costs needed to make your home more efficient.”
There are also maximum allowances for different upgrades. For installing more efficient windows, the tax credit is limited to $200, and there’s a $300 cap for “any item of energy-efficient building property.” Other restrictions include:
- Furnaces ($150):Must have at least 95 percent (up from 90 percent) annual fuel utilization efficiency (AFUE). Oil furnaces and boilers were returned to the single furnace category at 95 percent AFUE.
- Advanced main air circulating fan ($50):Must utilize less than 2 percent of a furnace’s total energy consumption.
- Central air conditioner ($300):Must have a seasonal energy efficiency ratio (SEER) of at least 16 and an energy efficiency rating (EER) of at least 13.
- Air-source heat pump ($300):Must have at least a heating seasonal performance factor (HSPF) of 9, SEER of 16, and EER of 13.
- Biomass fuel stove ($300):Must have a thermal efficiency rating of at least 75 percent
Builders and Manufacturers Benefit, Too
The bill reinstates a credit of up to $2,000 for builders (during 2010 and 2011) of energy-efficient residences that use no more than half the energy of a 2003 national model energy code home (the credit had expired in 2009). In addition, U.S.-based manufacturers of clothes washers, dishwashers, and refrigerators will receive credits ranging from $25-$200 for efficient appliance models produced in America during 2008, 2009, and 2010.
“While consumers cannot take these types of credits directly, these units may be promoted by manufacturers, or by state or utility efficiency programs, during the next two years,” notes the Tax Incentives Assistance Project. The group operates a website, energytaxincentives.org, devoted to tracking efficiency incentives.
Renewable Tax Credits Remain Active
Renewable energy tax credits created by the federal stimulus bill don’t expire until Dec. 31, 2016. These credits cover 30 percent of the cost of materials and installation for residential solar panels, solar water heaters, small wind turbines, and geothermal heat pumps. Details are available at www.energystar.gov/taxcredits.
Claiming Tax Credits
Tax credits are beneficial because they directly reduce, dollar for dollar, any taxes you owe. Be sure to keep your receipts and your Manufacturer’s Certification Statement (a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit) for your records. Then claim the credit on your taxes using IRS Form 5695.
Looking for Help?
Some electric cooperatives and state government offices offer additional subsidies or rebates to consumers who make their homes more energy efficient. The Energy Cooperative offers various rebate programs to help cooperative members save money. For a list of federal, state, and local energy efficiency rebates and tax credits, visit the Database for State Incentives for Renewables & Efficiency, a project funded by the U.S. Department of Energy, at www.dsireusa.org.
White House Talking Points
Details on what is covered by tax credit (not updated as of 01/03/2011):
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 Full Bill: