Save the Earth, Save a Few Bucks
Going green can score you tax savings on purchases you might have made in the normal course of living your life.
Going green is all the rage. Al Gore won an Oscar for his global warming documentary, An Inconvenient Truth. This year's Earth Day (April 22) awareness campaigns will be bigger than ever. And thanks to the landmark 2005 energy policy act, which went into effect last year, you can score tax savings on purchases you might have made in the normal course of living your life. I'll get to those in minute.
First, for any holdouts who still think the climate isn't warming because of human activity-get over it. There is no longer a single credible scientist on the planet who will argue the point. They have reached a consensus, even in the face of a well-funded, selfishly motivated oil lobby. You should see Gore's movie, if you haven't already.
Now, to those "green" tax breaks, which come in the form of tax credits and reduce your tax bill dollar-for-dollar by the amount of the credit. They are available in varying sizes for the purchase of a fuel-saving car or an energy-efficient home product.
Hybrid vehicles like the Toyota (TM) Prius and Ford (F) Escape, if bought new last year (or this year for filing in 2008), may generate a tax credit of up to $2,600. Alternative-fuel vehicles like the Honda (HMC) Civic GZX may generate a credit of $4,000. Though rare, vehicles powered by natural gas or methanol may be worth $12,000 in tax credits.
For a list of cars that qualify, go to hybridcars.com. As a bonus, in some states these vehicles qualify for perks like free parking in metered spaces and an exemption from lane restrictions designed to promote carpooling. Toyota has sold so many Priuses that recent and future buyers may not get the full tax benefit, which was reserved for the first 60,000 purchasers. So if you're planning to buy a hybrid vehicle this year, consider another model for tax savings-and ask if the sales limit has been reached.
Less lucrative (but still worthwhile) green tax breaks may be found inside your home. If you've done any remodeling or replaced any major appliances in the past year chances are you've installed energy-efficient products that qualify for a credit. If you're not sure, look for the government's blue-star energy logo on the product or call the manufacturer to see if a product meets federal guidelines for energy savings. Hold onto your credit card statement to prove what and when you bought. You can download proof of a product's energy efficiency on most manufacturers' websites.
Here are some items that, if bought last year (or this year for filing in 2008), can shave your tax bill:
- Insulation, sky lights, exterior doors and windows, and some metal roofs. These earn you a credit equal to 10% of the cost of the improvement, up to $500. The limit for windows is $200.
- Heat pumps, central air conditioners, circulating fans, furnaces and hot water heaters. The credit for these items runs up to $300.
- Solar water heating and electrical systems. These are expensive. But they really pay off at tax time. You may qualify for separate tax credits for solar water and solar electric systems equal to 30% of their cost, up to $2,000 for each.
There are other ways to go green and save a few bucks. You can probably save $150 or more over the course of a year on stamps, envelopes, paper checks and late fees if you pay your bills online. How is that green? For every 38,000 bills paid electronically, as a nation, we save one ton of paper, two tons of trees, 16,450 gallons of water, 1,941 pounds of solid waste, 60 pounds of emissions and 5,058 pounds of greenhouse gasses.
There are other tax savings new this year too which are notable, though they have nothing to do with energy. You now must have a receipt for all cash donations (even small ones). To claim any donated clothing or furniture it must be in "good" condition (basically, nice enough to sell at a thrift shop). You can now make a tax-free charitable distribution from your IRA if you are 70½, and can choose to have any tax refund directly deposited into up to three different accounts (including a tax-favored IRA).
Just about everyone is eligible for a one-time refund of up to $60 related to long-distance phone calls, and teachers who buy their students pens and pencils can get a $250 tax credit for those kinds of purchases.
Planning ahead? The Democrat-controlled congress is talking about tax hikes for the rich. That could mean reversing legislation allowing high earners to convert their traditional IRA to a Roth IRA after 2010. In a traditional IRA, distributions are taxed as ordinary income. In a Roth, distributions are tax free. If you're funding a traditional IRA now with an eye toward converting later, it could backfire. Still, that's a long time from now, and one constant in tax law is frequent change.
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