Green Tax Breaks

Now many of you may wonder what is the difference between a tax credit and a tax deduction and what will benefit me the most? A tax credit is a direct reduction of the amount of tax that you need to pay to the IRS. A tax deduction is a reduction of your taxable income which is then used to calculate the amount of tax you owe.

Typically a tax credit is a much better benefit for us! It is important to note that there are some income limitations to be eligible for tax credits and tax deductions so check in with your tax planner for questions specific to your case. The items listed below are key things to keep in mind when getting ready for your tax preparation.

There are multiple ways to earn these credits, ranging from purchasing a hybrid car to energy saving improvements you have made to your home. Stay tuned to the IRS website for more updates as they become available as all credits for the 2008 filing year have not yet been released.

If you have purchased a hybrid passenger car or light truck you have the potential to earn as much as a $3,400 tax credit on your tax return, depending on the purchase date and the date the vehicle is placed into service. There is also a credit phase-out which occurs after the second calendar quarter of the calendar quarter in which the manufacturer has the 60,000th sale. If you purchase the vehicle in the second and third calendar quarter after the 60,000th sale, you will receive 50% of the credit, and if you purchase in the fourth and fifth calendar quarters you will receive 25% of the credit. Any vehicle purchased and placed into service after the fifth quarter does not qualify for a credit. Check the IRS website for more detailed information on your hybrid car to see which credit level applies to you.

When you decide to add a fuel cell system (Up to $1,500), a solar energy system (Up to $2,000) or a small wind energy system (Maximum of $4,000-yes they do have these for residential homes!) you will received a 30% credit.

With the right tax planning you could take advantage or greening your home, saving money all while receiving tax credits!

For more detailed information on specific items please visit: energystar.gov