Energy-Savings Tax Credits Go Through Major Changes

Question: I went to considerable expense to have insulation installed and my windows weatherstripped last year. Then I read that the federal government has canceled the tax credits it used to offer for having this kind of work done. Is there some way I can get a tax break on this?

Answer: If the work was done and paid for during 1985, you still get the tax credits, because, after all, the tax you pay in April is for the previous year.

Federal income-tax credits may be claimed for 15% of the first $2,000 spent on adding insulation and other energy-saving items such as water heaters, weather stripping and caulking.

It is true, however, that as of Dec. 31, time ran out on the federal energy tax-savings break.

Robert Giannangeli, public affairs officer in the IRS’ Los Angeles district, says an effort was made to extend the legislation allowing the federal tax credit, but no action was taken before the end of the year. So as of this moment, federal energy tax credits are non-existent.

There is hope for reinstating some sort of tax-savings provisions for energy-savings improvements in the tax-reform bills now before Congress, according to Giannangeli. However, it’s anybody’s guess whether, if passed, the credits would be retroactive to the beginning of 1986, when the old legislation expired.

California’s solar and energy-savings tax credits are a different matter. A new law became effective Aug. 1 that greatly reduces the state tax credit and also totally changes the picture for persons who used only a partial amount of their tax credit last year and expect to use the remainder of the tax credit when filing their taxes for 1985.

The law does not allow any carry-over of the tax credits that were not used last year, James Reber, public affairs officer for the State Franchise Board, reports. Therefore, anyone expecting to claim, say, a $2,000 credit not used last year will be in for a shock when tax-paying time comes.

That applies only to 1985 taxes.

Beginning the first of this year, new legislation allows the taxpayer to once again carry over the tax credits from one year to the next. The law allows up to a third of the tax credit to be spread over a three-year period.

As to the reduction of state tax credits, here’s the picture: Before Aug. 1, the solar credit was 50% of the cost of the project, with a maximum of $3,000 credit. The law now allows only 10% of the cost for the project and a maximum of $1,000.

The energy-conservation credit was reduced Aug. 1 from 35% of the cost of the project and a maximum of $1,500 to 10% of the cost and a maximum credit of $750.

All of these credits apply only to single-family dwellings, of course.

If you’re considering energy-savings improvements or are caught in the middle of trying to carry over a state tax credit from last year, you may want to contact your tax preparer or the State Franchise Board (1-800-852-5711 or one of the local branches in downtown Los Angeles, Van Nuys, Long Beach or El Monte.)