Agriculture Issues Energy Efficient Property and Improvements The tax incentive that affects individual taxpayers that most is the new personal tax credit for the purchase of energy-efficient property and improvements of your principal residence.  The credit applies to property placed into service after 2005 but before 2008.  The credit is the sum of 10% of expenditures for qualified energy efficiency improvements to an existing home plus 100% of expenditures for qualified residential energy property.  The credit is limited to $500 for all tax years combined. The following improvements qualify for the 10% credit - Insulation materials designed to reduce heat loss/gain, including caulking and weather stripping Exterior doors Exterior windows, including skylights (limited to $200 of the credit) Metal roofs coated with heat reducing pigments Qualifies residential energy property includes: Qualified electric heat pumps, electric heat pump water heaters, geothermal heat pumps, and central air conditioners (limited to $300 of the credit) Qualified natural gas, propane and oil furnaces and qualified hot water boilers (limited to $150 of the credit) Advanced main air circulating fans (limited to $50 of the credit) Individuals are also eligible for a completely separate personal tax credit equal to 30% of the cost of qualified: Solar water heating equipment (maximum credit of $2,000) Electricity generating solar photovoltaic property (maximum credit of $2,000) Fuel cell property (maximum credit of $500 for each .5 kilowatt of capacity)  Energy Efficient Vehicles Current law allows an above-the-line deduction of $2000 for qualifying hybrid vehicles purchased before 2006.  The new law replaces the current deduction with a credit ranging from $650 to $3,400.  The credit is available to both individuals and business that purchase qualifying hybrid vehicles put into use after 2005, but before 2010.  Vehicles must have a "certificate of conformity" under the Clean Air Act to be eligible for the credit. The credit for hybrid cars and trucks with a gross vehicle rating of 8,500 pounds or less is comprised of two parts: 1) fuel savings compared to the 2002 models and 2) the vehicles estimated lifetime fuel savings. The credit is subject to a phase-out-rule.  Under this rule, the credit is phased our over a twelve month period beginning after the calendar quarter in which post-2005 sales of a qualifying hybrid vehicle exceeds 60,000.  When this rule kicks in, it affects all vehicles produced by the manufacturer, not just the one vehicle. A tax credit for the purchase of fuel cell vehicles is based upon the weight class of the vehicle and upon the rated fuel economy of the vehicle compared to a base fuel economy. Domestic Energy Production Credits available to domestic energy production are: Small agri-biodiesel producer: 10 cents per gallon up to 15 million gallons per year. Renewable diesel: $1 per gallon Investment in alternative fuel refueling property: $1,000 maximum credit Fuel cell power plants: 30% of basis Stationary microturbine power plants: 10% fo basis New nuclear power facility producing electricity: 1.8 cents per kilowatt hour More information will be available as we enter the 2006 tax year.      Commercial Activity Tax (CAT) The Commercial Activity Tax (CAT), to be phased in over the next five years, replaces the corporate franchise tax and tangible personal property tax, which will be phased out over the same time frame. Additionally, sales tax has been lowered and the personal income tax rates will be incrementally reduced by 21% over the next five years. The CAT affects sole proprietors (farmers), partnerships, corporations and service providers with sales or rental properties that have gross receipts of $150,000 or more a year. Businesses with gross receipts between $150,000 and $1 million a year are required to pay a $150 per year tax. Businesses that generate gross receipts of more than $1 million must pay the $150 fee plus 0.26% of their gross receipts in excess of $1 million. Those businesses with gross receipts of $150,000 or more need to register for the CAT by November 15, 2005. The fee for paper registration is $20 and the fee for online registration is $15.      Switching from the CCC Income Method to the Loan Method Previously, a taxpayer who had adopted the method of reporting CCC loans as income under IRC Sec. 77 could not change from this method without securing the advance permission of the IRS and filing a fee to accomplish an accounting method change (Reg. 1.77-1). In its 2002 procedures allowing automatic accounting method changes, the IRS now states that it will permit a taxpayer "to change its method of accounting for loans received from the Commodity Credit Corporation from including the loan amount in gross income for the taxable year in which the loan was received to treating the loan amount as a loan."  Thus, the IRS has provided that a farmer on the income method of reporting CCC loans can automatically switch to the loan method (Appendix Section 1.01, Rev. Proc. 2002-9, 1/7/02). This new revenue procedure is effective for tax years ending on or after December 31, 2001.  Accordingly, a Form 3115 accounting method change could be filed with a 2001 calendar year tax return, switching the taxpayer for the 2001 tax year from the income method to the loan method, as well as for any subsequent tax year. This change is made under the "cut-off" method.  Accordingly, there is no forward spread of the impact of this change.  Rather, for the year of change, the taxpayer simply reports all loans on the loan method.  Earlier loans from prior years under the income method would continue to finish their tax reporting under the Section 77 income method rules. Please contact Dale Schwieterman if you have questions regarding the above changes.