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Enjoy eco tax breaks

By Kay Bell ·
Thursday, April 22, 2010
Posted: 10 am ET

Happy Earth Day! This is a great manufactured holiday for environmentalists and tax geeks, since Uncle Sam will help pay for some ways to reduce your carbon footprint.

Even better, the tax breaks associated with eco-activity are credits. That means they can reduce your tax bill dollar for dollar.

Thanks to two recent tax bills -- The Emergency Economic Stabilization Act of 2008, which you probably know as the bailout bill enacted in November 2008, and the American Recovery and Reinvestment Act of 2009, aka the stimulus package -- federal tax credits for residential energy improvements were expanded and extended.

And 2010 is a big year for homeowners who want to maximize these credits. The key here is the amount of improvements and when they are done.

For 2009 and 2010, up to $5,000 in energy-efficient upgrades to your home could net you a tax credit for up to 30 percent of your costs. That comes to as much as $1,500 that could be subtracted from what you owe the IRS.

This tax break is available for eligible improvements made between Jan. 1, 2009, and Dec. 31, 2010. The $1,500 maximum improvement is for both tax years. And no, married couples, you don't get double in this case. It's $1,500 per tax return.

But $1,500 subtracted from your tax bill is great, regardless of your marital and filing status.

If you didn't take any of the credit on your 2009 tax return or didn't max it out this filing season, then you can make eligible improvements this year and claim them next year on your 2010 Form 1040 (be sure to fill out and attach Form 5695).

Bigger improvements, bigger tax breaks: If you're really committed to energy efficiency, then you can get even bigger tax breaks.

Homeowners who install qualified renewable energy systems can claim a tax credit of 30 percent of those improvements' costs without worrying about a dollar amount limit.

Renewable energy is energy produced via naturally replenishing resources, such as the sun, wind, water and geothermal heat. This category includes solar energy systems, wind turbines and geothermal heat pumps.

Even better, you've got more time to make these improvements. This credit is available through 2016. Plus, in addition to upgrades to your principal residence, you can count costs of these systems you put in a second home (as long as it's not a rental) that you own.

Don't forget state tax breaks: In addition to the federal tax credit, many other taxing jurisdictions offer energy incentives.

The free online Database of State Incentives for Renewables and Efficiency, which goes by the catchy acronym DSIRE (and yes, you say it like you really want it), maintains a comprehensive collection of state, local and utility company incentives for renewable energy and energy efficiency.

Be sure to check directly with your state's tax department. Many of those websites contain tax and energy saving information, such as Missouri's Energy Star appliance tax holiday.

Transportation tax breaks, too: The energy footprint you leave on your vehicle's accelerator also could get you a tax credit.

The hybrid and alternative fuel vehicle tax credit continues through Dec. 31. While the most popular fuel-efficient autos no longer qualify for this tax break, there is still a handful available that could save you some tax dollars.

Of if you opt for (and can find) a qualifying plug-in electric vehicle, that'll get you at least a $2,500 credit and perhaps as much as $7,500 off your tax bill, depending on the vehicle's battery capacity.

And thanks to the stimulus package, companies that offer commuting benefits can now provide their employees more in the way of tax-excluded financial help to pay for mass transit costs.

So enjoy Earth Day and where you can, let the tax code help you save the planet's resources.

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