Tax time is always crazy and this year is no exception. The government has several
large bills and it’s often hard to keep track of the ways we can be back as much
of our taxes as possible. The good thing is that the government is providing us
with more green tax credits and deductions than ever before.
Before going too far into the various green tax credits and deductions available,
I just want to make sure everybody knows the difference between the two because
it is extremely important.
A tax credit is a one-for-one dollar reduction in your total tax bill. Think of
it as the government literally giving you a credit for a particular amount of money
off of your tax bill. A tax deduction on the other hand reduces your taxable
income. Once you have all of your deductions taken off of your total income, this
amount is then the amount of money you will be taxed against.
The difference is a large one in that a tax credit is much more beneficial than
a deduction, but both are useful in reducing your tax bill.
Now that I’ve discussed the difference, lets go through some of the top incentives
that the government is providing to those who are making their lives a little more
green:
Heating and Air Conditioning
By upgrading your heating and air conditioning system to an Energy Star
rated system, you could qualify to get a tax credit of 30% of the purchase price
with a $1,500 cap. The types of systems include electric, natural gas, propane and
oil. There are various minimum efficiency requirements depending for each type of
system, so be sure to check the the system before putting this credit on taxes.
With energy companies always raising their rates, I consider this an extremely important
tax credit. Heating systems are essential and even having it at a low temperature
can still cost a fortune. I have heard of people in Maryland getting energy bills
of $500+ while only having the temperature at around 65°. By upgrading your system
you can not only save on your monthly energy bills, but also get up to a $1,500
incentive to do so.
Renewable Energy System
Renewable energy was really given a large boost during the 2008 Economic
Stimulus package including huge tax benefits if you have installed one this past
year. Geothermal Heat Pumps Geothermal energy has really become popular of late
especially in terms of heat pumps. They allow you to transfer heat from the ground
and use it throughout your house with the use of minimal electricity. Many consider
a geothermal system one of the most efficient heating systems on the market. The
only problem is that they can not be installed everywhere and existing duct work
may need to be replaced in order to install one in your home. What’s nice about
a geothermal heating system is that it can provide a 30% tax credit with no cap
like a traditional heating/cooling system. On top of having huge savings on your
energy bill, you could get 30% off the total cost of the system.
Solar and Wind Energy Systems
Just as with the geothermal system, both wind and solar systems provide
a 30% tax credit with no upper limit. Whether it be solar panels, a solar heating
system or a small wind generator, all qualify for the tax credit. There are some
qualifications on the solar heating system as it must generate heating for more
than 50% of the household. If you are planning on buying a system in the near future,
this tax credit is available all the way through 2016.
Insulating Your Home
If you bought new doors, windows, insulation or roofing that provide better
insulation for you house, you can get a 30% tax credit of a value up to $1,500.
All of these changes can help keep your house warmer/colder depending on the season
and you can also get part of the cost funded by the government. The general requirement
for many of these items is that they are Energy Star rated or meet a particular
quality requirements. If you plan on insulating your house, these tax credits are
available for products purchased through the end of 2009.
Cars
If you bought a hybrid, battery electric or alternate fuel vehicle, be
sure to take advantage of this tax credit. The tax reduction depends on the particular
vehicle you purchase and how efficient the vehicle is. The amount can range anywhere
from $250-$7,500 depending on the particular vehicle. There are some restrictions
including a vehicle limit of 60,000 per year with tax credits for Toyota and Honda
already being used up. Be sure to check with FuelEconomy.gov or a tax consultant to find out more information on what
types of tax breaks are available for different types of vehicles and further requirements.
I covered the major tax breaks available that can help reduce your tax bill whether
it be this year’s taxes or next years. With many of the incentives I mentioned above,
you not only will be getting a break through your tax bill, but also through your
monthly energy bills. As I stated above, if you are not clear of all of the details,
be sure to check with a tax professional so you don’t get audited.
Additional Tax Incentives?
If there are any additional incentives that I failed to mention or you
are utilizing any of the above that I mentioned, please share them with us.
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