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Article Series: Taxes
Help Me Understand My Taxes
Benefit
From The Energy Savings Tax Act of 2005
There are a lot of good reasons to buy energy
efficient products. They are good for the environment, they
reduce dependence on oil, and they are often more affordable
to own and operate. Add to this list of reasons that energy
efficient products add up to major tax deductions. The
Energy Policy Act of 2005, also known as EPACT, offers home
owners
and business owners alike tax credits for purchasing energy
efficient goods. Note that this is a tax credit, which translates
to a dollar for dollar reduction in your tax bill, unlike a
tax deduction, which only reduces your bill a percentage of
the deduction amount. The dollar for dollar tax credit can
knock a significant chunk off of your total tax bill.
The first place you can take advantage of the EPACT tax credit
is in your home. Replace your older appliances with newer,
more energy efficient appliances, and claim that expense back
when tax time rolls around. Additionally, you can make improvements
to your home that make it more energy efficient, like adding
insulation, replacing drafty windows, and repairing a leaky
roof, and claim that money back. There are certain energy efficiency
minimum standards that products must meet to qualify for a
tax credit under EPACT, and the efficiency of your product
may determine the amount of credit you can claim. A general
rule of thumb is that the federal government allows you to
claim 30% of the purchase price back, not to exceed $2,000,
but you should consult the IRS or a tax specialist to determine
the exact credit that applies to you.
Another way to take advantage of EPACT is through the car
you purchase. When you buy a hybrid car, you are eligible for
a tax credit ranging from $200 to $3600. The credit you get
depends on the make and model of the car and the fuel efficiency
of that model. If you buy more than one hybrid car, then you
can claim the credit for each one you buy. In some cases, the
dealership that sells the car may also be eligible for the
tax credit. The catch here is that the tax credit expires after
a certain number of a certain model is sold. The car dealership
can advise you if the credit is still in effect for the vehicle
you are considering purchasing. Again, make sure to check with
the IRS or a tax expert to find out the amount of the credit
to which you are entitled.
Businesses can benefit from EPACT in the same way private
individuals can. Upgrading office equipment to more energy
efficient models, making improvements to the office building
to make it more energy efficient, and replacing old company
cars with hybrid models all add up to tax credits for businesses.
Additionally, businesses that are involved in fields that promote
energy efficiency, such as businesses that trade in alternative
fuels or builders who build energy efficient homes can cash
in on extra tax credits.
EPACT is in effect until December 31, 2007, at which point
the bill can be renewed by Congress, or scrapped. The important
thing to remember is that there is no such thing as a one size
fits all tax law; when you are getting into the area of complex
tax credits, you should seek some guidance from a financial
advisor to help you find all of the credits you are entitled
to, without inadvertently claiming those to which you are not
entitled. Used properly, however, EPACT can have a major impact
on your final tax bill.
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SolveYourProblem.com : 2007
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