Matters Column

Energy-related incentives, rebates, tax credits are complex

June 21, 2013
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My firm’s offices are across Ottawa Avenue from Calder Plaza where there is an electric plug-in charging station. I haven’t seen much charging activity there. Perhaps this is the result of the relatively low sales volume of electric plug-in vehicles. 

This may change. The manufacturers of these vehicles have taken some recent steps that hopefully will generate more activity at that charging station.  

Chevrolet recently announced a reduction in the selling price for its electric vehicle, the Volt, in an attempt to generate more sales. The apparent hope is that the reduced selling price plus the federal tax credit for purchasers of the vehicle will assist in the sales effort.

The tax credit for electric plug-in vehicles is one of many incentives the federal government has used to encourage the migration from gasoline-fueled and -powered vehicles to other energy sources for conducting daily activities. There have been many federal initiatives, grants, tax credits and other favorable tax code provisions with respect to increasing energy independence and converting to less polluting sources. 

The $7,500 federal tax credit for electric plug-in vehicles is one of the more generous tax credit programs for individual taxpayers. Electric plug-in vehicles have generated relatively low sales volume to date, even with the federal incentives. Certain states have attempted to incent automobile buyers with state tax incentives for electric-powered vehicles.

These energy tax credit incentives are interesting in some respects as they require a purchaser to actually have a tax liability to begin with that can be offset by any of the credits. 

With respect to the federal credit, it may be difficult for many middle-class taxpayers to actually get full benefit of the credit in a single tax year. With modest tax rates for lower- and middle-income tax earners and with child credits and other credits and incentives, many families may not generate sufficient federal income tax liability to utilize the tax credit in one tax year.

For those who have a federal income tax liability, there are other tax credits relating to energy that are available, as well as other incentives. These tax credits can include credits for expenditures for items such as solar panels, furnaces and other improvements. Other energy incentives are available from the energy providers. 

A week doesn’t go by without the receipt of a letter at our homes touting the incentives that are available to utility customers. These include rebates for certain expenditures. Many of these rebate programs apply to both residential and commercial customers. For a residential customer, the incentives can include rebates for a new furnace, as well as incentives for insulation, energy-efficient thermostats and other improvements.  

The utility incentives for commercial and industrial customers are even more extensive and cover a long list of items. Certain of these items also qualify for federal and state tax incentives. Thus, for some expenditures, both state and federal incentives may apply to the same transaction.

The utility incentives offered by Consumers Energy, DTE and other utilities may have some specific requirements or guidelines that need to be followed in order to receive the rebates. The websites of the energy/utility companies have specific details on the various offerings and incentives and should be looked at prior to making any decisions. 

With a little time and some effort, advance planning may yield real savings both up front and through the life of the expenditure incurred.

The rebates, coupled with tax credits for some of the expenditures, can reduce the actual cash outlay for some of these improvements. A website I have referred to that summarizes many of the federal and state incentives available is the database of state incentives for renewable and efficiency, or DSIRE, found at dsireusa.org. Another helpful website is the government’s Energy Star website at energystar.gov/index.cfm?c=tax_credits.tx_index.

Claiming the tax credits can take some effort to locate the appropriate credit form. Since there are so many different incentives, there are many IRS forms to accommodate the programs and credits. For example, Form 5695 is required for residential energy tax credits. IRS Form 8836 is used to claim the credit for a qualified plug-in electric vehicle credit. Looking at the IRS website recently, I counted nearly a dozen different tax forms used to claim energy tax credits. 

The rules for qualifying for these credits, rebates and other incentives can be a bit complex, so a careful review of the exact requirements for qualifying expenditures must be performed. The assistance of a professional may be needed to navigate through all the information and requirements. For many, spending some time and energy checking out the various credits, rebates, grants and other incentives offered by governments and utilities may yield both cash savings and a more favorable carbon footprint.  

Bill Roth is a tax partner with the local office of BDO USA LLP. The views expressed are those of the author and are not necessarily those of BDO. The comments are not to be considered specific tax or accounting advice and cannot be relied upon for the purposes of avoiding penalties. Readers are advised to consult with their professional advisers before acting on any items discussed.

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