Changes to Oregon's BETC

The Oregon Legislature, in an effort to address budget issues and to fine tune the Business Energy Tax Credit (BETC) program, has made changes that local readers may want to know about.

The attorneys at Lane Powell have done an excellent job summarizing the changes including the new limits. You can read their summary here.

Other Green Incentives for Business

In my last blog post I covered IRC Sec. 179D and the deduction for energy efficient commercial buildings.

Today, I'm going to highlight some of the other energy and efficiency related incentives that you might want to know about. Due to the complexity and the narrow applicability of many of these tax incentives, I'm just going to list them out today and I'll decide later whether to delve deeper into any of them.

1. Accelerated Depreciation for Qualified Smart Electric Meter and Qualified Smart Electric Grid System (IRC Sec. 168(e)(3)(D)(iii) and (iv));
2. Qualifying Advanced Energy Project Credit (IRC Sec. 48C);
3. Energy Efficient Appliance Credit (IRC Sec. 45M);
4. Credit for Carbon Dioxide Sequestration (IRC Sec. 45Q);
5. Qualifying Advanced Coal Project Credit (IRC Sec. 48A);
6. Qualifying Gasification Project Credit (IRC Sec. 48B);
7. Alcohol Fuels Credit (IRC Sec. 40);
8. Enhanced Oil Recovery Credit (IRC Sec. 43);
9. Renewable Electricity Production Credit (IRC Sec. 45);
10. Biodiesel Fuels Credit (IRC Sec. 40A);
11. Low Sulfur Diesel Fuel Production Credit (IRC Sec. 45H)
12. Advanced Nuclear Power Facility Production Credit (IRC Sec. 45J); and
13. Nonconventional Source Production Credit (IRC Sec. 45K).

Green Tax Incentives for Travel (Part I)

I covered federal tax incentives for going green in the home here and here. Now I'm going to cover green tax incentives associated with travel.

For individuals, the following credits are available:

• New Qualified Plug-in Electric Drive Motor Vehicles Credit (IRC Sec. 30D)
• Certain Plug-in Electric Vehicles Credit (IRC Sec. 30)
• Alternative Motor Vehicle Credit (IRC Sec. 30B)
• New Qualified Fuel Cell Motor Vehicle Credit (IRC Sec. 30B)
• New Qualified Advanced Lean burn Technology Motor Vehicle Credit (IRC Sec. 30B)
• New Qualified Hybrid Motor Vehicle Credit (IRC Sec. 30B)
• New Qualified Alternative Fuel Motor Vehicle Credit (IRC Sec. 30B)
• Plug-in Conversion Credit (IRC Sec. 30B)

The first three items on the list are also available for businesses that purchase energy efficient vehicles.

The rules for each of these credits is too detailed to blog about but you can find out more by reviewing the code sections or looking at the required forms where the various credits are calculated - Form 8936 (Qualified Plug-in Electric Drive Motor Vehicle Credit), Form 8834 (Qualified Plug-in Electric and Electric Vehicle Credit), and Form 8910 (Alternative Motor Vehicle Credit).

Green Tax Incentives for the Home (Part II)

In Part I we covered the Non-business Energy Homeowner Credit provided in IRC Sec. 25C. In this post we'll cover the Residential Energy Efficient Property Credit provided in IRC Sec. 25D.

Like the IRC Sec. 25C Credit, this is available to individual taxpayers and is based on the cost of energy efficiency improvements made to their United States residence. The nonrefundable credit is for 30% of certain expenditures. With one exception however, the expenditures under 25D need not be made to a principle residence, making the credit available on multiple residences located in the United States.

It should be noted that 25D credits can offset both regular and AMT tax. Any credit allowed under 25D reduces the basis of the property by the amount of the credit.

In general, this tax credit covers:

• Qualified solar electric property expenditures;
• Qualified solar water heating property expenditures;
• Qualified fuel cell property expenditures;
• Qualified small wind energy property expenditures;
• Qualified geothermal heat pump property expenditures;

It should be noted that many of these credits had limits between $500 and $2,000 prior to 2009. A number of new laws eliminated the limits on everything but the fuel cell property for the years 2009 through 2016.

Labor costs to prepare, assemble and install the property is included in the credit calculation. Expenditures to heat a swimming pool or hot tub are not allowed.

Taxpayers should get documentation from the manufacturer to claim the credit. The credit can be claimed by properly completing Form 5695 (Residential Energy Credits) and attaching it to the taxpayer's Form 1040.

Green Tax Incentives for the Home (Part I)

There are federal tax credits to help you green your home. IRC Sec. 25C and IRC Sec. 25D provide for the federal credits. I'll cover IRC Sec. 25C in this post and IRC Sec. 25D in the next post.

IRC Sec. 25C provides Non-business Homeowners Energy Credits of 30 percent up to $1,500 aggregate cap. This credit is for expenditures made in 2009 and 2010. It is set to expire at the end of this year. IRC Sec. 25C is for improvements to a principle residence.

The credit is for:

• Qualified energy efficiency improvements, and
• Residential energy property expenditures

"Qualified energy efficiency improvements" is mostly about improvements to the building envelope. Windows, skylights, roofs, insulation, and doors would all qualify if they meet the appropriate performance standards.

"Residential energy property expenditures" is where you get your credit for furnaces, boilers, heat pumps, air conditioners, hot water heaters, fans, and the like. This equipment must meet performance and quality standards to qualify.

The IRS issued Notice 2009-53 to provide interim guidance on the credit. One thing to note is that the IRS cautioned that Energy Star certification doesn't establish that a product is qualified for credit, especially with regards to exterior windows and skylights placed in service after enactment of the American Recovery and Reinvestment Act of 2009.

Taxpayers should make sure they receive proper certification from the manufacturer for property on which they plan to take the credit.

Going Green using the Tax Law

I'm often asked about tax and other governmental incentives for going green, so thought I'd give a high level overview. It would probably take a book to cover all the federal, state and local incentives that might be available so I'll just be covering the federal tax incentives.

I've worked with clients who got part of their funding to "go green" through federal programs like USDA REAP Grants, which are available for rural development. I do not know where one would find a comprehensive list of all the available programs that might fund your green project.

On a local level however, you should always check the Database for State Incentives for Renewables & Efficiency to see what local incentives are available.

For the CPAs and attorneys who might be interested, there are three main federal Acts which provide tax incentives for businesses and individuals:

1. The American Recovery and Reinvestment Act of 2009 (ARRA)
2. Emergency Economic Stabilization Act of 2008 (EESA)
3. The Energy Policy Act of 2005

Check back and I'll cover the incentives in the next few posts.

Taxes, AIG bailout and more

I was going to blog about taxes so I started researching the federal budget and looking for an image to post.  

I really wanted to discuss the residential energy-efficient property credit, which was extended through 2016 and which generally covers solar electric, solar water heating, fuel cell property, small wind energy and geothermal heat pump property.  I also wanted to discuss the non-business energy property credit for insulation, exterior windows, exterior doors, furnaces, water heaters and other energy-saving improvements to a main home which was not available in 2008 but returns in 2009.

However, the AIG bonus hysteria got in the way of a deeper discussion on taxes. 

First, I don’t believe anyone is worthy of a multi-million dollar income and lifestyle while we have needy children in our midst.  That is one of my beliefs and values.  I think billionaires are evidence of a flawed system.

While I’m opposed to the whole Wall Street bailout and the more than $9 TRILLION spent on this fiasco to date, what gets me is the missing perspective on the AIG bonuses.

AIG Bonuses = $165,000,000 ($165 million)

Missing Cash in Iraq = $12,000,000,000 ($12 billion – 73x more)

Official cost of Iraq war to date = $656,100,000,000 ($656.1 billion – 3,977x more)

Wall Street bailout to date = $9,400,000,000,000 ($9.4 TRILLION – 56,970x more)

The AIG bonuses amount to 2/1000^th’s of the cost of the bailout!

FYI:  Missing from the "official" cost of the bailout is government guarantee and insurance programs like the FDIC ($1.5 trillion), FHA ($.3 trillion) and the Federal Reserve ($7 trillion).

Tax breaks for the green community

The latest tax bill has some nice benefits for the sustainability community to help us green our economy. For instance, starting in 2009, employers can give bicycle commuters a tax free fringe benefit of up to $20 per month to cover the cost of pedaling to work including repairs, storage, accessories and even the cost of a bike. Employers and employees should act now to put this in place starting January 1st.

Also, the credit for residential energy saving improvements will return in 2009. The 10% tax credit has been expanded to include biomass fuel stoves as well. You may want to delay the installation of skylights, windows, outside doors and high-efficiency furnaces, water heaters and central a/c units until next year in order to claim the credit. This credit will be on the books through 2017 so you can use it in 2010 and beyond if you don’t get your project done next year.

One of the challenges for the alternative energy market is financing, and tax policies can make or break projects. Trying to determine long-term cash flows with unpredictable tax policies makes the challenge even harder so it is good news that many existing energy tax breaks have been extended:

• Coal and wind energy credits as well as the biodiesel credit have been extended through 2009.
• Energy credits for biomass and landfills lapse after 2010, as will a new credit for energy from waves and tides.
• The 30% solar energy and fuel cell credits however get a long-term extension through 2016. 
• The residential solar credit also lasts through 2016, and the $2,000 cap is repealed. 
• The law that allows commercial realty to expense energy saving improvements will run through 2013.

Residential Energy Tax Credits Set to Expire

Hurry!! At the end of 2008, without Congressional action, the only remaining federal residential energy tax incentives available for homeowners will expire. You must act soon if you want to take advantage of the following tax credits:

FUEL CELL POWER PLANT – A credit of 30 percent, to a maximum of $500 per ½ kilowatts of electricity generated by electrochemical means from a qualified fuel cell plant installed in the taxpayer’s primary home located in the United States.

SOLAR ELECTRIC AND/OR SOLAR WATER HEATING SYSTEMS - The credit is 30 percent of the cost, with a maximum cap of $2000, for the installation of a qualified system in the taxpayer’s primary or secondary home located in the United States.

These credits are nonrefundable and can only be used to offset your income tax in the current year. Any unused credit can be carried forward to future years. No credit is allowed for expenditures related to hot tubs or swimming pools. You may lose part or all of the credit if you are taxed by the alternative minimum tax.

The House passed H.R. 5351 (Renewable Energy and Energy Conservation Tax Act of 2008) back in February 2008, which would have extended these credits as well as others to 2009 and beyond. Unfortunately, the bill is stuck in the Senate and faces a threatened veto so it looks unlikely to pass this year. The cost of the extended credits would have been funded by reducing subsidies to the oil and gas industry. Hmmm, I wonder if that has anything to do with the hangup?