What’s New for 2005 Returns (Part 1)
What’s New for 2005 Returns
The Energy Policy Act of 2005
On August 8, 2005 President Bush signed the Energy Policy Act of 2005 (EPACT). The Act contains $14.5 billion in tax cuts to promote domestic energy production and conservation. It offers consumers and businesses federal tax credits beginning in January 2006 for purchasing fuel-efficient hybrid-electric vehicles and energy-efficient appliances and products. Most of these tax credits remain in effect through 2007.
A tax credit is generally, but not always, more valuable than an equivalent tax deduction because a tax credit reduces tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed.
The Act encourages the design and improvement of energy-efficient homes and green vehicles, encourages the use of alternative energy sources, including solar, wind, ethanol, bio-mass and clean-coal technology, provides significant energy infrastructure tax incentives to ensure development of more robust and reliable power grids and tax incentives provided directly to the fossil fuel industry and those who invest in its future.
Automobile Tax Credits. Individuals and businesses who buy or lease a new hybrid gas-electric car or truck are eligible for, and can receive, an income tax credit of $250 to $3,400 depending on the fuel economy and the weight of the vehicle. Hybrid vehicles that use less gasoline than the average vehicle of similar weight and that meet an emissions standard qualify for the credit. “Lean-burn” diesel vehicles could also qualify, but currently available diesel vehicles do not meet the emissions standard. There is a similar credit for alternative-fuel vehicles and for fuel-cell vehicles.
If individuals and businesses buy more than one vehicle, they are eligible to receive a tax credit for each vehicle. If a tax-exempt organization buys such a vehicle, the retailer is also eligible to receive another credit. Companies that buy heavy duty hybrid trucks are also eligible for a larger tax credit. Currently, there is a $2,000 tax deduction for hybrid vehicles for the remainder of 2005.
This tax credit is for vehicles “placed in service” beginning January 1, 2006, but because there is a waiting list for many hybrids, consumers can receive the tax credit if they arrange to purchase the vehicle in 2005 as long as they do not take possession of the vehicle until January 1, 2006. This tax credit will be phased out for each manufacturer once that company has sold 60,000 eligible vehicles. At that point, the tax credit for each company’s vehicles will be gradually reduced over the course of another year.
Continued next week.
This column is offered as a public service with the understanding that each person's tax situation is different; and that you should consult your CPA before taking any action based upon comments made in this article. Call me and I will be happy to explain my “CPA Quality tax preparation at H&R Block Rates”. I can be reached at 825-2771.