Monday, August 15, 2005

New law will reward us for saving energy

David Leeper
Special to the Times


Last week, President Bush signed a new energy savings bill that potentially will affect all of us. It contains many tax laws designed to foster energy savings.

Although the media have widely criticized the president for not doing enough to save energy, this new tax law generated few headlines.

Some of the highlights:

 

  • Energy-efficient homes: The new tax law allows a home builder to receive up to $2,000 in tax credits for building an energy-efficient home during the next two years.

    That's right, folks, the U.S. government will pay a contractor to design and build a home that substantially reduces our energy costs. There is an emphasis on insulation materials, windows, doors, etc. I would speculate that, much like car dealer rebates, these tax credits will be passed on to the home buyer in the form of lower construction costs.

    Interestingly, these tax credits are also available for mobile and other types of manufactured homes. Clearly it is intended to apply to all -- rich or poor.

     
  • Energy-efficient improvements to existing homes: A homeowner may receive up to $500 in tax credits for making energy-efficient improvements to an existing home during the next two years.

    Again, the U.S. government will pay us to make improvements to our home that cut our own energy bills. The bill emphasizes insulation, exterior windows, exterior doors and metal roofs. It also emphasizes replacement of furnaces and water boilers, and use of main air fans.

    Again, this credit is also available for improvements to manufactured homes that meet certain standards.

     
  • Energy-efficient commercial real estate: The new law also allows a deduction for a portion of the cost of energy-efficient commercial buildings. This includes both construction of a new building and improvements to existing buildings. This portion of the statute is a little more detailed.

    For property placed in service after 2005, we can deduct up to $1.80 per square foot. There is no maximum limit on the amount of the deduction.

    The statute specifically focuses on lighting, cooling, heating, ventilation and hot water systems.

    It requires inspection and certification by individuals approved by the IRS and apparently will also require detailed forms to be filed with the IRS and others.

    It is unclear as to who gets the deduction -- the building owner, the building contractor, or perhaps a pass-through to a lessee. More on this later.

     
  • Miscellaneous: Also new is a tax credit for 30 percent of the cost of photovoltaic property and solar water-heating equipment -- up to a maximum of $2,000. More on this later.

    These tax benefits are intended to be incentives for owners to improve the energy efficiency of their existing buildings and for new buildings to be designed to be more energy-efficient.

    Folks, this new law is another example of the government using the tax code to impact our behavior. The estate tax is used to keep the rich from creating dynasties. The mortgage interest deduction is used to encourage home purchases. And now federal tax credits are being used to foster energy efficiency.

    While these are all worthwhile, they were never the purpose for creating a federal tax law. And they are another example of why it is so complex and will be so hard to change.

    El Paso lawyer David Leeper specializes in income- and estate-tax law. He may be reached at 581-8748, by e-mail at LLeeper1@elp.rr.com or go online, www.davidleeper.com
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