Tax Incentives To Ease The Pain Presentation Full Version

Tax Incentives to Ease the Pain

California Center for Sustainable EnergyOctober 14, 2009

Presented by Walter Wang, JD, LL.M

Circular 230 DisclosurePlease be advised that, based on current IRSrules and standards, the following presentationwas not intended or written to be used, andcannot be used by the taxpayer, for the purposeof avoiding penalties that may be imposed onthe taxpayer. If this presentation is provided inany manner to another taxpayer, he or shecannot use the advice and should seek advicebased on his or her own particularcircumstances from an independent tax advisor.

Setting the Stage

Current Economic Conditions

Global economic recession – Are we out of it yet?Significantly lower oil prices in 2009 compared to Summer 2008 highs.Energy/Oil Billionaire T. Boone Pickens forecasts oil will pass $75/barrel before the end of the year and the average price per barrel will be $80 in 2010.

Current Climate Conditions

Recession = Global decline in greenhouse gas emissions in 2009.If there was no recession, then:

By late in the century, 90% of the Sierra snow pack would be lost, sea level rising by more than 20 inches, and there would be 3 to 4 times increase in heat wave days (“Climate Change Proposed Scoping Plan”, California Air Resources Board (October 2008)).

San Diego Foundation 2050 Report

Residential Electricity Rates in California(1990-2009)

Source: Energy Information Administration

Price of Crude Oil (1970-2008)

Price of Crude Oil(2008-2009)

The Tax Benefits

Purchasing a Hybrid Car

Tax credit available to vehicles placed in service after December 31, 2005 and before December 31, 2010.Tax credit applies only to the original purchaser of a new, qualifying hybrid (used hybrids need not apply).Leases – The lessor claims the credit.AMT Limitations – None for 2009

Purchasing a Hybrid

Tax Credit is phased out once the manufacturer has sold its 60,000th hybrid vehicle.

What is the phase out period?1st 2 quarters of the phase out period – 50% of the allowable credit.3rd and 4th quarters – 25% of the allowable credit.No credit is available for cars purchased after the last day of the 4th quarter of the phase out period.

Qualifying Hybrids

Honda and Toyota/Lexus hybrids no longer qualify as tax credits have been completely phased out. GM – Full Tax Credits AppliesFord – Phase-Out Period – Reduced CreditsChrysler – Full Tax Credit AppliesMazda – Full Tax Credit AppliesNissan – Full Tax Credit Applies

Qualifying Hybrids

Claiming the Tax Credit for the Purchase of a Hybrid Vehicle

IRS Form 8910

What about clean-diesel cars?

Tax credit available as an “advanced lean burn technology motor vehicle”Phase out rule applies here as well. Qualifying cars

2009 Audi Q7 TDI - $1,1502009 BMW 335d - $9002009 BMW X5 xDrive35d - $1,8002009 Mercedes GL 320 BlueTEC - $1,8002009 Mercedes R 320 BlueTEC - $1,5502009 Mercedes ML 320 BlueTEC - $9002009 Volkswagen Jetta 2.0L TDI Sedan - $1,3002009 Volkswagen Jetta 2.0L TDI SportWagen - $1,3002009 Volkswagen Toureg TDI - $1,150

Other Credits Available for Purchase of a Vehicle

Alternative Fuel Motor Vehicle Credit“alternative fuel” means compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid at least 85% of the volume of which consists of methanol.

Honda Civic GX - $4,000What about the “Flex Fuel” designation?

Other Credits Available for Purchase of a Vehicle

Plug-In Conversion Credit10% of the cost of converting such vehicle as does not exceed $40,000.

Plug-In Electric Drive Vehicles

Credit for new qualified plug-in electric drive motor vehicles (2009)

$2,500 + $417 for each kWh of traction battery capacity in excess of 4kWh.Credit is limited to between $7,500 to $15,000 depending on the gross vehicle weight of the car.

Golf carts need not apply.

Phase-out begins after 250,000th vehicle is sold after December 31, 2008.AMT LimitationsUse IRS Form 8834 to claim the credit.


Credit amount after December 31, 2009

$2,500 + $417 for each kWh of traction battery capacity in excess of 5kWh.Credit is limited to $5,000.Phase-out threshold is now 200,000.


Applicable Vehicles Include:Fisker KarmaTesla RoadsterTesla Model SChevrolet VoltNissan Leaf

Energy Efficiency – The Low Hanging Fruit

30% tax credit for amounts paid or incurred for qualified energy efficiency improvements and residential energy property expenditures.Limitation: $1,500 (cumulative for all expenditures for 2009 and 2010).Original use of the property must begin with the taxpayer.Tax credit only applies to a dwelling unit that is a person’s principal residence.

This includes qualifying manufactured homes.Does not apply to vacation homes.


What improvements qualify?“qualified energy efficiency improvements” = “energy efficient building envelope components”

Insulation material or system (including any vapor retarder or seal to limit infiltration) that is specifically and primarily designed to reduce heat loss or gain of a dwelling unit when installed. The products must meet the prescriptive criteria as established by the 2009 IECC, as was in effect on February 17, 2009. Exterior Windows, Skylights, & Doors that have a U factor and Solar Heat Gain Coefficient of 0.30 or below and meets the prescriptive criteria as established by the IECC.


Storm windows and doors that, in combination with the exterior window or door has a U factor and SHGC of 0.30 or belowMetal roof (1) that has appropriate pigmented coatings that are specifically and primarily designed to reduce the heat gain of a dwelling unit when installed on the dwelling unit, and (2) meets or exceeds either of the applicable Energy Star program requirements.


Asphalt roof that (1) has appropriate cooling granules that are specifically and primarily designed to reduce the heat gain of a dwelling unit when installed, and (2) meets or exceeds either of the applicable Energy Star program requirements.


Tax credit for expenditures made with respect to eligible building envelope components does not include installation costs.


“Residential energy property expenditures” = “qualified energy property”

Electric heat pump water heater that yields an energy factor of at least 2.0 in the standard DOE test procedure.Electric heat pump that achieves the highest efficiency tier established by the Consortium for Energy Efficiency (1/1/09)


Central air conditioner that achieves the highest efficiency tier established by the Consortium for Energy Efficiency (1/1/09)Natural gas, propane, or oil water heater that has an energy factor of at least 0.82 or a thermal efficiency of at least 90%.Biomass-burning stove to heat a home or to heat water for use in the home and that has a thermal efficiency rating of at least 75% as measured using a lower heating value.


Natural gas furnace that achieves an annual fuel utilization efficiency rate of not less than 95.Natural gas hot water boiler that achieves an annual fuel utilization efficiency rate of not less than 90.Propane furnace that achieves an annual fuel utilization efficiency rate of not less than 95.Propane hot water boiler that achieves an annual fuel utilization efficiency rate of not less than 90.Oil Furnace that achieves an annual fuel utilization efficiency rate of not less than 90.Oil hot water boiler that achieves an annual fuel utilization efficiency rate of not less than 90.Advanced main air circulating fan (fan that is used in a natural gas, propane, or oil furnace and has an annual electricity use of no more than 2% of the total annual site energy use of the furnace.


Installation costs for qualified energy property are included for purposes of determining the tax credit. Reliance of Manufacturer’s Certification that property qualifies as either qualified energy property or eligible building envelope component is permissible.


Special Rule for Energy StarNot all products with the Energy Star label qualify for this tax credit. Only products that meet the requirements of the tax credit qualify. For amounts paid or incurred before June 1, 2009 for property placed in service after February 17, 2009:

Taxpayers may rely on the Energy Star label for exterior windows and skylights, if the window or skylight is installed in the region identified on the label.


Use IRS Form 5695 to Claim the Credit.No AMT Limitation in 2009.Condominiums – Each homeowner shall be treated as having made the individual’s proportionate share of any expenditures of the HOA.


State Developments:CPUC’s recent approval of approximately $3.1 billion in ratepayer funding for energy efficiency programs for 2010-2012.


Strategic Plan goals for the residential sector are:Home buyers, owners and renovators will implement a whole-house approach to energy consumption that will guide their purchase and use of existing homes, home equipment (e.g., HVAC systems), household appliances, lighting, and "plug load" amenities. Plug loads will be managed by developing consumer electronics and appliances that use less energy and provide tools to enable customers to understand and manage their energy demand. The residential lighting industry will undergo substantial transformation through the deployment of high-efficiency and high performance lighting technologies, supported by state and national codes and standards.

Going Solar?

30% Tax Credit on the purchase of qualified solar water heating property expenditures.

“qualified solar water heating property expenditure” is an expenditure for property to heat water for use in a dwelling unit located in the US and used a a residence by the taxpayer if at least half of the energy used by such property for such purpose is derived by the sun.

Going Solar?

30% Tax Credit for qualified solar electric property expendituresBoth the tax credit for solar water heating property and solar electric property may be taken in the same yearNo AMT LimitationExcess tax credit can be carried forward.

Going Solar?

CA incentivesSolar Water Heating Pilot Program ($1,500 maximum)California Solar Initiative

Sliding scale down rewards early entrantsCurrent step = 5

EPBB = $1.55/wattNext step – incentive gets reduced down to $1.10/watt

Going Solar?

Taxability of CSI RebateSince the CSI rebate is from ratepayer funds, for residential application, the rebate is exempt from Federal income tax.The CSI rebate is exempt from CA income tax.

Going Solar?

Example of CSI Rebate/Tax Interaction

Going Solar?

Other Tax Issues:Sales tax applies to the sale of the system but does not apply to installation costs. No property tax increase as a result of the installation of solar electric or solar hot water systems.

Going Solar?

Financing OptionsCash PurchaseHome Equity LoanCommunity Based FinancingPower Purchase AgreementsLeases

Going Solar?

Other IssuesCondo’s – similar rule to solar hot water heating systemsHOA Issues

CA Civil Code Sec. 714 and 714.1Feed In Tariff (AB 920)

Requires electric utilities to adopt by January 1, 2011, a net surplus electricity compensation valuation to compensate a net surplus customer-generator.Does not limit an eligible customer’s eligibility for other rebates, incentives, or credits.

Thank You

Contact Information:Walter Wang, JD, LL.MManaging DirectorSunflower Tax(619) [email protected]

mailto:[email protected]

http://www.sunflowertax.com/

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Tax Incentives To Ease The Pain Presentation Full Version