Energy Tax Incentives Act of 2005 - Quick Overview
Want a quick view of how the Energy Tax Incentives Act of 2005 affects you? See the overview below.
Individual Provisions
- Alternative Technology Vehicles
- Residential Energy Efficient Property
- Non-business Energy Property
Pass-through Provisions
- Fuels from Non-conventional Sources
- Renewable Energy Resources Credit
Other Provisions
- New Home Energy Efficiency
- Solar Iinvestment
- Energy Efficient Appliances
- Fuel Cells and Microturbine Power Plants
- Energy Efficient Commercial Building Property
Alternative Technology Vehicles
Description: A nonrefundable credit for the purchase of fuel efficient vehicles. The vehicle must be certified by the Treasury Department as qualifying for the credit. The following vehicle types are included in this provision:
Hybrid vehicle: A hybrid vehicle uses both gas and electricity to propel the vehicle. Several auto manufacturers including Toyota, Honda, and Ford manufacture hybrid vehicles.
Fuel cell vehicle: A fuel cell vehicle uses hydrogen as its main source of power.
Advanced lean burn vehicle: This type of vehicle has a combustion engine designed to use more air than necessary for complete combustion of the fuel.
Alternative fuel motor vehicle: This automobile is deigned to use compressed or liquefied natural gas, liquefied petroleum gas, hydrogen, or other qualifying fuel. Hybrid vehicles may qualify under this definition. Electric vehicles that qualify for the electric vehicle credit are specifically excluded from the definition, however.
Credit Amount:
- Hybrid vehicle: $400 to $2,400 depending on fuel economy plus a conservation credit of $250 to $1,000 based on lifetime fuel savings. This credit replaces the clean-fuel "hybrid" vehicle deduction.
- Fuel cell vehicle: $8,000 to $40,000 depending on the weight of the vehicle plus $1,000 to $3,000 based on fuel efficiency. Hydrogen vehicles are not yet available for purchase.
- Advanced lean burn vehicle: The credit is calculated in the same manner as the hybrid vehicle credit.
- Alternate fuel motor vehicle: $5,000 to $40,000 depending on fuel economy of the vehicle. A reduced credit is available for vehicles that use both a qualifying alternative fuel and gasoline.
Effective Date: Starts in tax year 2006. Hybrid, lean burn diesel, and other qualifying vehicles must be purchased before 2011 (2010 for hybrid vehicles that weigh more than 8,500 pounds). Fuel cell vehicles must be purchased before 2015.
Residential Energy Efficient Property
Description: A nonrefundable tax credit for the purchase of solar water heating, photovoltaic equipment, and fuel cell property for use in the taxpayer's personal residence. (Fuel cell property must be installed in taxpayer's principal residence.) Qualifying property must provide an energy source for the entire house. Costs related to swimming pools, hot tubs, or other property that can be used for any purpose other than energy storage do not qualify.
Credit Amount: The credit is the sum of 30% of expenditures up to:
- $2,000 for photovoltaic property.
- $2,000 for solar water heating property.
- $500 per half kilowatt of capacity for fuel cell property.
Effective Date: 2006 and 2007.
Non-business Energy Property
Description: A nonrefundable credit for the purchase of energy-efficient improvements to existing homes located in the U.S. Qualifying property includes insulation, windows, doors, furnaces, hot water heaters, and heat pumps that meet Energy Star program specifications.
Credit Amount: The credit is the sum of:
- 10% of qualified energy efficient improvement costs (insulation, doors, and certain metal roofs).
- 10% of the cost of qualifying windows, up to a maximum credit of $200.
- 100% of residential energy property expenses, subject to dollar limitations: $150 for a furnace or hot water boiler, $50 for a circulating fan, and $300 for other property.
Important: Unlike other credits, this provision has a $500 maximum lifetime limit.
Effective Date: 2006 and 2007.
Fuels from Non-conventional Sources
Description: The Energy Act of 2005 created a new credit for qualifying production of fuels from agricultural biomass (plant material).
Credit Amount: This credit is $1.00 per gallon of agri-biodiesel fuel produced. There is also a new $.10 per gallon credit for small producers of agri-biodiesel fuels. The credit becomes part of the general business credit, which allows a 1-year carryback and 20-year carryforward previously not allowed.
Effective Date: 2006-2008.
Renewable Energy Resources Credit
Description: The credit for electricity produced from renewable energy resources is expanded to include Indian coal facilities and qualified hydropower facilities. The new law also extends certain provisions of the existing renewable energy credit.
Credit Amount: The credit for Indian coal is $1.50 per ton through 2009 and $2.00 per ton after 2009. The credit for hydropower production is $.95 per kilowatt hour of electricity produced.
Effective Date: The credit is effective for qualified facilities placed in service on or after August 8, 2005 and before Jan. 1, 2008. The credit can be claimed by the facility for 10 years thereafter (7 years for Indian coal facilities).
New Home Energy Efficiency
Description: General business credit for contractors who construct new energy-efficient homes in the United States. Eligible homes include single family dwellings, houseboats, house trailers, and apartment buildings. The amount of the available credit depends on the projected reduction in heating and cooling costs over comparable dwellings.
Credit Amount:
- Homes with a projected 30% cost savings: $1,000
- Homes with a projected 50% cost savings: $2,000.
Effective Date: 2006 and 2007.
Solar Investment
Description: Business credit for installation of qualifying solar energy property including fiber optic equipment that uses solar energy to light the interior of a building and solar property that is used to heat or cool a building or provide hot water. Equipment used on swimming pools does not qualify.
Credit Amount: 30% of qualifying costs.
Effective Date: 2006 and 2007.
Energy Efficient Appliances
Description: A business credit for the production of energy efficient clothes washers, refrigerators, dishwashers. The credit does not apply to the purchase of these appliances, but the manufacturer may pass the credit on to the consumer in the form of a reduced price.
Credit Amount:
- Refrigerators: $75 - $125
- Dishwashers: Up to $100
- Clothes washers: $100
Effective Date: Appliances manufactured in 2006 and 2007.
Fuel Cells and Microturbine Power Plants
Description: This nonrefundable credit applies to qualified equipment installed on commercial buildings, including rental property. A fuel cell uses electromechanical means to convert fuel into electricity. A microturbine converts fuel into electricity and thermal energy.
Credit Amount:
- Microturbine power plants: 10% of expenses up to a maximum of $200 per kilowatt of capacity.
- Fuel cell property: 30% of expenses up to a maximum credit of $500 per half kilowatt of capacity.
Effective Date: 2006 and 2007. Property must be placed in service after 2005.
Energy Efficient Commercial Building Property
Description: Unlike the other provisions, this benefit comes in the form of a deduction for amounts paid or incurred for energy efficient building property installed in connection with the construction of commercial, depreciable property in the United States. Energy efficiency requirements include reduced cost for interior lighting, heating, cooling, hot water, and ventilation systems. The installation must be part of a certified plan.
Credit Amount: The deduction is limited to $1.80 per square foot of affected property. A partial deduction may apply in some cases.
Effective Date: Property placed in service in 2006 and 2007.
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