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On December 31, 2013, the Residential Energy Credit expired.  This credit allowed homeowners to deduct 15% of qualifying nonbusiness energy efficient improvements up to a maximum allowable credit of $500.00.  While this credit has been allowed to sunset, the Residential Renewable Energy credit offered by the federal government will be in effect until December 31, 2016.  The state of North Carolina offers a more generous Renewable Energy Tax Credit through December 31, 2015.  These credits are available to any taxpayer installing eligible renewable energy technology on their primary residence.  The two main viable sources of renewable energy available in North Carolina are geothermal heating and cooling systems and solar power.   Both energy sources qualify for the Renewable Energy Credits.

Solar power has two options under the existing credits.  If a homeowner installs a solar hot water heater, they are eligible for a 30% federal credit on the cost of the system including installation.  There is no limit to the dollar amount of the federal credit.  However, the federal credit does not apply to a heater for a swimming pool or a hot tub.  The North Carolina credit is 35% of the cost of the system including installation.  This credit has a cap of $1,400 but it can be used for a solar pool heating system.

The other solar option is the installation of photovoltaic solar panels.  The photovoltaic panels actually generate power from solar energy.  If a homeowner installs photovoltaic panels for their personal residence, they are eligible for a 30% credit on the cost of the system including installation with no dollar limit.  North Carolina offers a 35% credit on the cost of the system including installation.  The credit caps at $10,500.  The combined credits can cover up to 65% of the cost of the entire system.  Add that to the savings in energy costs and the breakeven time of a solar system becomes very short.

Another type of renewable energy that is eligible for the Renewable Energy Credit is a geothermal heating and cooling system.  Any homeowner installing a geothermal system will also be eligible for a 30% federal credit on the cost of the system including installation.  This credit, like the solar credit, has no dollar limitations.  The state of North Carolina offers a 35% credit on the cost including installation.  For a geothermal system, the credit has a dollar cap of $8,400.

For questions about either of these credits, please contact our office.  Langdon & Company LLP would love to answer any questions you may have.

by Tony Pandiscia

If you hadn’t heard by now, Congress passed a temporary extenders bill Dec. 16, which was signed into law by the President today. The Tax Increase Prevention Act of 2014 retroactively extends for one year (to Dec. 31, 2014) all the provisions that expired last year. So yes, that means those very same provisions will expire in just a few weeks, leaving the question of longer term extensions to the new Congress.

The larger question is what impact this will have on filing season. The Tax Girl blog (written by Kelly Phillips Erb, Forbes) suggested that this bill will delay the start of filing season, even though it merely extended existing provisions and did not result in significant forms delays or other operations changes to IRS. She observed, “The IRS Commissioner has not yet announced a start date to the 2015 season: I would expect a late January to early February date.” Many were already anticipating another challenging filing season, perhaps the most difficult season the profession has seen in many years.

Compounding the problem is that a separate bill passed by Congress on Dec. 13 cut the IRS budget by nearly $346 million. Last September, the AICPA recommended Congress fully fund the IRS, stating that “we believe that proper funding of the IRS’s budget is essential to the IRS’s ability to carry out its mission,” which includes providing assistance to taxpayers and tax practitioners. These additional cuts to the IRS budget could mean even longer wait times when calling IRS, additional delays in responses to inquiries and issuance of administrative guidance, as well as a further slowdown in the release and update of tax forms and instructions.

Individual extenders

The following provisions which affect individual taxpayers are extended through 2014:

… the $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary material used by the educator in the classroom;

… the exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income;

… parity for the exclusions for employer-provided mass transit and parking benefits;

… the deduction for mortgage insurance premiums deductible as qualified residence interest;

… the option to take an itemized deduction for State and local general sales taxes instead of the itemized deduction permitted for State and local income taxes;

… the increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes;

… the above-the-line deduction for qualified tuition and related expenses; and

… the provision that permits tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70 and ½ or older.

Business extenders

The following business credits and special rules are generally extended through 2014:

… the research credit;

… the employer wage credit for activated military reservists;

… the work opportunity tax credit;

… three-year depreciation for racehorses;

… 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;

… 7-year recovery period for motorsports entertainment complexes;

… 50% bonus depreciation (extended before Jan. 1, 2016 for certain longer-lived and transportation assets);

… the election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation;

… the enhanced charitable deduction for contributions of food inventory;

… the increase in expensing (up to $500,000 write-off of capital expenditures subject to a gradual reduction once capital expenditures exceed $2,000,000) and an expanded definition of property eligible for expensing;

… the exclusion from a tax-exempt organization’s unrelated business taxable income (UBTI) of interest, rent, royalties, and annuities paid to it from a controlled entity;

… exceptions under subpart F for active financing income;

… look-through treatment for payments between related controlled foreign corporations (CFCs) under the foreign personal holding company rules;

… the exclusion of 100% of gain on certain small business stock;

… the basis adjustment to stock of S corporations making charitable contributions of property;

… the reduction in S corporation recognition period for built-in gains tax;

… the empowerment zone tax incentives;

Energy-related extenders

The following energy provisions are retroactively extended through 2014:

… the credit for nonbusiness energy property;

… the renewable electricity production credit, and the election to claim the energy credit in lieu of the renewable electricity production credit;

… the credit for construction of energy efficient new homes

Langdon & Company LLP advises and supports nonprofit organizations, commercial businesses and their owners, endeavoring to fulfill all of their tax planning, auditing, consulting, and outsource accounting needs.