Tax Time: Energy Tax Credits

Lowell Ungar and Harry Misuriello
Alliance to Save Energy
Tuesday, March 28, 2006 2:00 PM

Energy efficient home improvements and hybrid vehicles don't just help the environment, they can save you money on your taxes.

To discuss tax credits individuals may receive from the Energy Policy Act of 2005, Lowell Ungar, a senior policy analyst for the Alliance to Save Energy, was online Tuesday, March 28 at 2 p.m. ET .

Also joining the discussion was Harry Misuriello, director of buildings and utilities for the Alliance to Save Energy, who can answer questions about tax credits for commercial builders, their tenants and homebuilders.

A transcript follows .

For complete Tax Time coverage, visit washingtonpost.com/tax .

____________________

Ashburn, Va.: I am interested in purchasing a pellet-burning stove for my house. Does this appliance (and the installation costs) qualify for a tax credit? If so, what is the maximum amount of the credit?

Thank you.

Harry Misuriello: Unfortunately, no. The pellet stove is not on the list of heating and cooling equipment for which there are tax credits.

_______________________

Accident, Md.: This year we put in a wood/coal outside furnace. We kept our oil burner as a backup.

The entire project cost about $16K.

Any chance we can qualify for a tax credit for this?

Signed... staying warm in Western Maryland.

Harry Misuriello: No, unfortunately that equipment does not qualify for the tax credit.

However, you can check state and local incentives at:

http://www.dsireusa.org/

_______________________

Austin, Texas: I'm having a new heating and a/c system installed today with an SEER rating of 15. I'm told this qualifies for a $300.00 tax credit when I file next year. Is this true and if so, how do I go about getting the tax credit? Will a special form be required when filing my taxes and how do I prove to IRS I had this equipment installed?

Thanks,

Gary

Harry Misuriello: Conratulations on your wise purchase decision. Yes, the SEER 15 AC unit will qualify. IRS will be publishing a tax form for your tax return next year.

Be sure to keep your "manufacturer's certificate" with your tax records.

Consult your tax preparer for more details.

_______________________

Harrisburg, Pa.: Let me please ask an effectiveness question: which tax credits save the most energy? Is it more effective, if we have limited amounts of tax credits, to use them for purchasers of hybrid vehicles, or for the conversion of large commercial buildings into more energy efficiency, or for the conversion of homes into greater energy efficiency, or for utility companies to make the power grid more energy efficient?

Lowell Ungar: That's a question we constantly ask ourselves. The effectiveness of a tax credit depends on the energy saving potential, whether the tax credit is enough to change behavior, and whether it isjust a give-away to people who will make the efficiency improvements anyway. There is a tremendous potential for saving energy in all the areas you mention and more--new homes, existing homes, appliances, commercial buildings, cars and other vehicles, industry, etc. The most effective credits are those that spur a lasting change, creating a market for energy-efficient products even after the credit has ended. We'll have to see which of the new credits has the most impact.

_______________________

Capitol Hill, Washington, D.C.: Hi, we are about to install new double pane windows, replacing single pane windows. The job will cost thousands of dollars. What do we need to do to claim the energy tax credit?

Harry Misuriello: Good for you! The simplest way is to just purchase Energy Star windows. Make sure that the window bears the Energy Star label that applies to your region (it shows a map.) Your window installed should be familiar with it. Be sure to keep your reciepts and the Energy Star documentation with your tax records.

_______________________

Montgomery Village, Md.: First, I just wanted to thank you and the ASE for your efforts on behalf of energy efficiency. You are part of a great organization. As for my question, I was hoping you could tell me what are the best places on the web to get up-to-date, comprehensive information about what sort of individual/consumer tax credits are now out there for energy-efficient purchase? The IRS web site refers to "certain qualified" items, but often doesn't spell out what those items are.

Thanks.

Harry Misuriello: Thanks very much!

To stay in touch with the latest news on tax incentives, be sure to check: www.energytaxincentives.org

This is the web site for the Tax Incentives Assistance Project. There is a comprehensive list of eligible energy efficiency items and frequently-asked questions (FAQs)

_______________________

Cleveland, Ohio: Could you please explain the 60,000 car phaseout for the hybrid vehicle credit? I've read the IRS page but understand neither how it works nor why it even exists. Very confusing!

Lowell Ungar: The tax credit for hybrid (and some diesel) vehicles includes a phase-out to limit the cost to the government. The phaseout clock starts when an automaker (eg Toyota) has sold 60,000 vehicles that qualify for the credit. Buyers can get the full credit for that calendar quarter, and the one afterward. After that the credit slowly phases out: 50% for two more quarters, 25% for two quarters after that, and then nothing. The dealer should be able to tell you when you purchase the vehicle whether it qualifies for a credit, and for how much.

_______________________

Fairfax, Va.: Are there any plans for tax credits through VA (not just federal), or even any type of energy rebates for that matter? Right now there are only certain counties that are exempt to local property tax on solar equipment but only on the equipment not all property tax. There are the alternative fuel vehicle incentives but it is much harder to prove biodiesel as an AFV than a hybrid, is that ever going to change?

The federal tax rebates for efficiency are nice but VA has some of the lowest incentives at a state level.

Is anything going to change state wise?

Thanks,

Harry Misuriello: I don't know the complete answer to your question, but any state or local incentives to be had in VA will be found at:

http://www.dsireusa.org/

That's the web site of the The Database of State Incentives for Renewable Energy (DSIRE)

Also see the web site for the Southeast Energy Efficiency Alliance (SEEA) at www.SEEA.us

This is a new regional organization to promote energy efficiency in the Southeast states.

_______________________

Washington, D.C.: To get the tax credit for having a hybrid vehicle, does it matter if the car is leased or owned?

Lowell Ungar: Leased vehicles also can qualify for a credit according to the law, but the IRS has not yet published guidelines on who gets the credit and how. So we'll have to wait for more information.

_______________________

Washington, D.C.: I am on Workers' Comp and don't file taxes. How can I take advantage of this program?

Lowell Ungar: The consumer tax credits for home improvements and hybrid vehicles are not refundable, so if you don't pay taxes, sorry, you cannot claim them. In addition, they cannot be taken against the Alternative Minimum Tax, so high-income taxpayers may not be able to use them. However, many of the efficiency measures are cost-effective anyway, so I urge you to look into them. In addition, the tax incentives may bring down the cost of energy-efficient technologies.

For non-profits and governments (which also do not pay taxes), the rules vary--providers can take the incentives for vehicles and for commercial buildings, and should then give them a corresponding discount.

_______________________

Clemson, S.C.: I would like to buy a replacement hot water heater that qualifies for the tax credit, but I have not been able to identify a brand or modle number. Can you help me find a hot water heater that qualifies?

Harry Misuriello: See the Gas Appliance Manufacturers Web site

Electric water heaters need an "energy factor" rating of 2.0 EF

Gas and oil water heaters need an energy factor of 0.80.

You can search the GAMA web site for qualifying products.

_______________________

Arlington, Va.: There seems to be more energy-conscious construction lately, both in residential and commercial areas. Are either of you seeing evidence that tax credits for energy efficiency are making "greener" buildings more commonplace? Or are builders responding to a greater demand from buyers?

Lowell Ungar: It's really too early to tell how much impact the tax incentives are having. There certainly is an increase in "green" building both for homes and for commercial buildings, with tremendous growth for example in Energy Star homes and in LEED certified commercial buildings. The tax incentives are also spurring a lot of interest, and we hope the tax incentives will speed that growth.

_______________________

Washington, D.C.: Are there any constraints on types of insullation that can be installed in an existing uninsulated house in order to qualify for the tax credit?

Harry Misuriello: No there are not. The insulation has to meet the 2004 International Energy Conservation Code criteria.

For straightforward guidance, see:http://www.simplyinsulate.com

_______________________

Santa Cruz, Calif.: Can I get a tax benefit for converting my existing car to electric power?

Harry Misuriello: No, not under the Federal tax incentives in the Energy Bill. For details on what qualifies, see:

www.energytaxincentives.org

_______________________

New Orleans, La.: Some things should be of more value then filling up the pockets of the already rich business CEOs. i.e. the environment!! We are nothing without a clean environment. Promoting tax cuts will motivate people to better care for the environment. Keeping price ceilings on these cars only benefits the business men. Would you rather these businessmen threaten you or Mother Earth? Stop filling up your pockets and try to breath!!

Harry Misuriello: You may be heartened to know that the Federal tax incentives we are discussing today are estimated to have the following effects by the year 2020:

Energy savings: 2.92 Quads (the US uses about 100 quads/year

Consumer $ savings: $26.586 billion

Carbon reductions: 51.3 million metric tons

As some of the popular energy ads today read, "it's a start."

_______________________

Bethesda, Md.: What is your opinion on where we are as an energy efficient country? Obviously the tax credits are a nice incentive, but do you see a time in the near future, where we won't need incentives like this and the market will just naturally demand more environmentally-friendly products?

Lowell Ungar: We have made great strides in improving energy efficiency--we (the Alliance to Save Energy) estimate that without the energy efficiency measures we have made over the past three decades we would now be using 40% more energy each year than we do. However, every time we look, we find similarly vast potential for new cost-effective energy measures.

Why aren't we taking them? There are many reasons. Often people don't know about good efficient products. Sometimes the people who buy houses or appliances don't pay the energy bills (eg landlords may pay for appliances but renters pay the utilities). Sometimes people are not willing to pay a little more up front in order to save money later on.

So the market does demand efficient products, but we think there is a place for targeted tax incentives (and for federally-funded research and efficiency standards and other measures) to help it along.

_______________________

Arlington, Va.: What kinds of things are not yet included in the Energy Tax Credit that you think should be included?

Harry Misuriello: That's a good question. As you might know, the the tax credits for insulation, windows, storm doors, roofs, etc. only allow the cost of the material to count towards the tax credit. Installation costs are NOT included currently.

However, installation costs do count towards the credit for qualified heating, air-conditioning and water heating equipment.

I think more people would participate in the tax credit program if more of the installation costs were covered.

_______________________

Washington, D.C.: Just a comment to encourage - I spent $500 on R-19 green insulation (made from recycled denim instead of fiberglass) and my gas bill dropped by 25 percent, and I get a tax credit on that $500 of insulation - it's a win-win situation for everyone.

Lowell Ungar: That's great! We certainly think that people will (and should) be motivated to take energy-efficiency measures by the sky-high energy prices as well as the clean-air benefits, greater comfort, and other reasons. But the tax incentives can help, and we hope that the incentives will spur people to take a look at more efficient homes, vehicles, and appliances and see all the other benefits.

Tax incentives are a win-win-win policy for consumers, manufacturers, and the public interest--that's one reason they were enacted last year.

_______________________

Lowell Ungar: I wanted to add a little more on what should be added to the energy tax credits. The most important need right now is to extend how long they last. Most of the efficiency tax incentives started on January 1st and only last until the end of 2007. Because of the phaseout, for some automakers the hybrid vehicle credit will expire even sooner. And delays in getting out IRS rules and guidelines have made it difficult to start marketing the incentives.

Two years is probably not long enough to see the kind of lasting market changes the incentives were designed to create. It's almost impossible to design and construct a new commercial building, for example, within the two-year period. So we believe there is an urgent need to extend the incentives and modify the vehicle credit phaseout to give builders, manufacturers, and retailers a chance to plan, and thus magnify the impact of the incentives.

In addition, we would like to see the incentives expanded. Besides the consumer credits for home improvements and heating and cooling equipment, hybrid vehicles, and solar equipment, there are incentives for builders and manufacturers for new homes, commercial buildings, and home appliances (refrigerators, dishwashers, and clothes washers). Some of them could be improved, and others could be added--especially a credit for combined heat and power, an efficient approach to on-site generation of electricity for large buildings and industrial plants.

_______________________

washingtonpost.com: Thank you to Lowell Ungar and Harry Misuriello from the Alliance to Save Energy for leading this discussion. More information is available at www.ase.org/taxcredits and for complete Tax Time coverage, visit washingtonpost.com/tax .

_______________________

Editor's Note: washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.