New energy bill includes a few tax incentives for consumers


August 07, 2005|By Eileen Ambrose

ALTHOUGH businesses will get the bulk of the tax breaks, there are a few perks for green-minded consumers in the new energy legislation awaiting the president's signature.

Tax breaks for hybrid car purchases or home improvements that conserve energy will take effect next year. Some of them, though, expire after two years. Still, these tax incentives might be just enough to prompt consumers to make environmentally friendly, energy-efficient moves, experts said.

"There are good tax breaks for the consumer," said Brian Castelli, chief operating officer with the Alliance to Save Energy. "One thing to note, these are tax credits now, not tax deductions."

A tax credit reduces your bottom-line tax bill dollar-for-dollar, making it more valuable than a deduction.

Isaac Opalinsky, a sales manager with Aurora Energy in Annapolis, said he expects sales of residential solar water heaters and electric systems to increase now that consumers will get tax credits for such purchases. A solar water heater typically sells for $6,000 to $7,000, while solar electric systems can cost up to $20,000.

"It costs more than most people think they should have to pay," Opalinsky said. "But having the incentives in place not only reduces the cost, but demonstrates that the government supports this type of technology."

Marylanders in particular might appreciate the additional tax relief, given that some state tax breaks on green purchases expired last year, including an exemption from the 5 percent excise tax on the price of a hybrid car.

Among the new federal tax breaks:

Hybrid cars. Tax credits worth up to thousands of dollars will be available to those buying hybrid cars fueled by gas and electricity as well as other vehicles using alternative power sources. Some of these vehicles aren't yet available to the mass market, said Mark Luscombe, a principal with CCH Inc., a tax information provider in Illinois.

This tax credit essentially will replace the $2,000 federal tax deduction on hybrid purchases.

The size of the credit will depend upon the vehicle's weight, fuel economy and lifetime fuel savings, and consumers likely can count on manufacturers doing the math for them, Luscombe said.

Buy a hybrid car next year, for example, and you may receive a tax credit ranging from $250 to $3,400.

But don't wait too long to make that purchase. The credit may only be claimed on the first 60,000 hybrids sold by each manufacturer, and thereafter it's phased out.

"That means to reward people who are the pioneers, or the first to buy and jump-start the market," Castelli said.

Some say the cap also helps domestic manufacturers that have lagged their Japanese competitors on developing hybrids.

The credit will expire in 2010 for hybrid medium and heavy trucks and a year later on hybrid cars and light trucks, according to CCH. It runs through 2014 on fuel cell vehicles.

Home improvements. You may qualify for a 10 percent tax credit on the cost of home improvements that prevent energy from seeping out of the house, such as adding insulation and energy-efficient windows and doors.

The credit is available for the next two years, and the maximum credit over that time is $500. Of that, no more than $200 can be claimed for windows.

Additionally, homeowners can receive a tax credit for 30 percent of the cost of buying and installing a solar water heater or a solar electric system. The maximum credit is $2,000. Solar water heaters for pools and hot tubs don't count, said Bob D. Scharin, editor of RIA's Practical Tax Strategies, a publication for tax professionals.

The credit also is available for two years, expiring at the end of 2007.

Often, environmentally friendly appliances and equipment cost more upfront, and homeowners recoup the cost over time through lower energy bills, Scharin said. "Now the upfront price difference will be reduced by tax savings," which could be the deciding factor on purchases, he said.

Maryland homeowners also may qualify for state grants worth up to 20 percent of the cost and installation of solar water heaters and solar electric systems. The maximum grant available is $2,000 for a solar water heater and $3,000 for a solar electric system for the home.

The Maryland Energy Administration will begin accepting grant applications on Aug. 22 and is expected to award a total of $75,000.

Home construction. Builders may qualify for tax credits for installing energy-efficient heating and cooling appliances, and that savings could be passed on to homebuyers, Luscombe said. Depending on how much energy is conserved, the credit may be up to $1,000 or $2,000 per residence.

To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at

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