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ENERGY CREDITS: NOW SOME EVEN REDUCE AMT

May 31, 2006

One of the cruel jokes in the 2005 "energy bill" was that many of its core tax benefits didn't apply in computing alternative minimum tax. The effect was to negate the tax for millions of taxpayers in high-tax states, like Iowa.

The recently-signed "Tax Increase Prevention and Reconciliation Act" fixes this problem for many of the personal energy credits. Unfortunately, they don't apply to some of the most highly-publicized tax credits.

FIRST, THE GOOD NEWS:

These credits will now count for AMT:

Residential Energy Efficiency Credit. This credit is 10% of improvements to the "building envelope." This means roofing, doors, windows and insulation. It also is available in lump sums for certain appliances:

- $50 for each "advanced main air circulating fan";
- $150 for each "qualified" natural gas, propane, or oil furnace or water boiler, and
- $300 for "qualified energy-efficient property," including heat pumps, water heaters, and air conditioners."

These credits are limited to $500 in total, including a $200 limit on windows.

Solar credit

The 30% tax credit for residential photovoltaic, solar water heater and fuel cell property also now reduces AMT for 2006.

Be careful: thes credit only reduces AMT for 2006, even though the credits technically apply to property purchased through 2007.

NOW THE BAD NEWS

The alternative vehicle credit, which applies to hybrid cars, still doesn't reduce AMT. That means most Iowans who can afford the Lexus 400h SUV probably won't be able to use the credit.

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