Cabin Business

Last spring, when the U.S. government was trying to revive the economy, you may recall all of the stimulus money that was approved by our federal government. Inside the American Recovery and Reinvestment Act of 2009 were some provisions designed to benefit the environment, the economy and also your pocketbook. Inside that bill is nearly $79 billion allocated for renewable energy, energy efficiency and green transportation (according to a final tally of the legislation by the nonprofit organization Environment California). A lot of that money will be in the form of grants to fund projects for things like solar, wind and geothermal energy on a broad sense with tax credits promised to companies who complete environmentally friendly projects.

The package also extended and increased the tax incentives that were started in 2006 in the form of tax credits to taxpayers who make qualifying home improvements or purchase qualifying “green” products. That’s where you can see a direct improvement in your pocketbook. So, in addition to the warm and fuzzy feeling you get about helping the environment, you have the added incentive of a reward when you file your taxes next year.

What is a tax credit?

A tax credit is not something that you receive when you make a purchase. You can claim the tax credit when you file your tax return at the end of the year. The credit then increases the tax refund you receive or decreases the amount you have to pay. In general, a tax credit is more valuable than a deduction because a tax credit reduces the amount of tax you pay, dollar-for-dollar, while a deduction reduces your taxable income. So, if you are in the 35 percent tax bracket, a tax deduction (for instance, home mortgage interest or charitable giving) reduces your taxes by 35 percent of the amount of the deduction where a tax credit reduces your taxes by 100 percent of the amount of the credit.

Please note that when making tax decisions, it is always a good idea to consult with your tax professional who knows your specific situation.

Vehicle purchases
that qualify

One of the most popular tax credits has been on the purchase of a new hybrid vehicle. These credits have been around since 2006. If you are in the market for a new vehicle, consider buying a hybrid or clean diesel model. In addition to your savings on your gasoline bill and lowering your carbon footprint, you may save thousands on your tax bill. There are many vehicles that are eligible for the credit, but unfortunately the best selling hybrid, the Toyota Prius, is no longer eligible. Each hybrid manufacturer is allowed to sell 60,000 units before the credits begin to be phased out.

There are still three manufacturers who sell eligible hybrid vehicles: Ford, General Motors and Nissan. Ford, however, has begun the phase-out process, but purchases are still eligible for a partial credit. Anyone who purchased a Ford hybrid before April 1 may get the full credit. After that you will have to refer to the phase out schedule. Nissan and GM hybrids are still eligible for the full credit, which varies depending on the vehicle. The Volkswagon Jetta TDI sedan also qualifies with its diesel engine. Mercedes, BMW and Audi also have vehicles that qualify.

Brett Berry, general sales manager at Crain Automotive in Conway, said that they sell two hybrid vehicles at their dealership that qualify for tax credits, the GMC Yukon SUV and GMC Sierra truck. He said that he hasn’t seen many people choosing the hybrid models because of the extra cost of the vehicle. Depending on how many miles they drive, it can take years to recoup the extra up-front cost. He also said, regarding the models that they sell, that the SUVs and trucks aren’t usually the vehicles that people go to when they are trying to save gas mileage and cost. He said that the hybrid cars have been much more popular.

For more information on the tax credits for vehicles, visit www.irs.gov or visit with your local dealer.

Home Improvements

The package for clean energy also encourages tax payers to improve the energy efficiency of their homes. If you purchase an energy-efficient product or renewable energy system for your home, you may be eligible for a federal tax credit.

The reason for the tax incentives seems to be working here locally. Brian Parsons from Freyaldenhoven Heating and Cooling in Conway said, “From what I have seen, these tax incentives have spurred more people to choose the more efficient model who normally would have chosen the 80 percent unit.”

Parsons said that they have had many customers that have upgraded to a more efficient unit so that they can get the tax credits. He said that the minimum efficiency that manufacturers are allowed to make is 80 percent. To get the credit you need to purchase a 95 percent efficient unit. He said that most times, the difference in price for the customer for the upgrade comes back to them in the tax credit. Not to mention that their unit will be more efficient and save them money on their utility bills.

Freyaldenhoven Heating and Cooling sells Trane products, and Parsons pointed out that if you can time it right you can also benefit from Trane factory rebates.

The tax credit for the items that qualify is 30 percent of the amount of the item purchased. The installation cost doesn’t always qualify but in most cases it does. There are three lists of items that qualify for the credit. Some of them have a maximum credit available. For instance, you can upgrade to a new heating and air unit that is 95 percent efficient and get a tax credit. (The installation cost is also included.) The maximum credit you can take on that (and other items that qualify) over the two-year period (2009-2010) is $1,500. So if you spend $5,000 you will get a $1,500 tax credit (30 percent of $5,000).
You can also add qualified insulation to your home for a credit but installation costs are not included on that. Other purchases and improvements that qualify for a tax credit with the $1,500 limit include biomass stoves, roofs (metal and asphalt with “cooling granules”) and water heaters (regular heaters with 90 percent efficiency).

To qualify for these credits it must be an existing home and your principal residence (no second homes or rentals).

There are some improvements that don’t have a limit on the amount of tax credit you may receive. Those include geothermal heat pumps, small wind turbines and solar energy systems including solar hot water heaters and solar panels for your home.

These are all available for existing homes and new home constructions. These are available for both principal residences and second homes. Rentals do not qualify for any of these credits. For more details about these tax credits you can visit www.energystar.gov.

Gail Murdoch is a certified financial planner with Cardinal Investment Group (1150 Bob Courtway Drive, Conway) with securities offered through Investors Capital Corporation, member FINRA/SIPC.