| Date: | 01/13/2006 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Corporate Excise/Personal Income Tax
This Technical Information Release ("TIR") explains several provisions in the "Act Relative to Heating Energy Assistance and Tax Relief" ("the Act"). See St. 2005, c. 140, signed into law on November 22, 2005. Under the Act, certain taxpayers subject to the personal income tax imposed by G.L. c. 62 are eligible for a deduction for certain expenses for home heating, and for a credit for energy-efficient heating items installed in residential property located in Massachusetts. Also under the Act, taxpayers subject to the corporate excise imposed by G.L. c. 63 may be eligible for a credit for a solar water heating system in a commercial building, and for a credit for energy- efficient heating items installed in residential property located in Massachusetts.
I. Personal Income Tax Deduction for Home Heating with Oil, Natural Gas or Propane for Low and Moderate Income Taxpayers
A. Qualified Expenses for Home Heating Fuel. Income eligible taxpayers may claim a home heating fuel deduction up to a maximum of $800. The Act requires that "[t]he deductions may be used only for the cost of home heating oil, natural gas and propane purchased between November 1, 2005 and March 31, 2006." See St. 2005, c. 140, § 14(a). (Under proposed legislation at Senate Docket 2467 , An Act Amending The Heating Energy Assistance and Tax Relief, the deduction would be extended to individuals who use wood and/or electricity for home heating purposes.)
A taxpayer who qualifies for the deduction may apply the deduction in taxable year 2005 for purchases made between November 1, 2005 and December 31, 2005. If the taxpayer does not take the full $800 deduction in taxable year 2005, the taxpayer may take the remainder in taxable year 2006 for purchases made in 2006 through March 31, 2006.
Monthly Budget Fuel Plan. A monthly budget fuel plan spreads the cost of fuel over 12 months; the monthly budget payment is calculated based on estimated usage and expected average fuel price for the upcoming heating season. Only the payments made during the period November 1, 2005 through March 31, 2006 qualify for the home heating fuel deduction.
Credit Card Payments. Where a taxpayer purchases fuel using a credit card to make payments, the transaction dates relating to fuel purchases must fall during the period November 1, 2005 through March 31, 2006 for the purchases to qualify for the home heating fuel deduction; the dates on which the taxpayer pays the credit card bills for fuel do not control.
B. Qualifying Taxpayers; Filing Status and Income Limitations. A single person may claim the deduction only if his or her adjusted gross income [1] is equal to or less than $50,000. A person who qualifies as a head of household may claim the deduction only if his or her adjusted gross income is equal to or less than $75,000. Married persons who are joint filers may claim the deduction only if their adjusted gross income is equal to or less than $75,000. If a married individual files separately, no deduction is allowed.
C. Owners. A qualifying taxpayer who owns a single-family home may claim the amount of qualified expenses for home heating fuel.
A qualifying taxpayer who owns a multiple-unit dwelling (a multifamily residence that includes the taxpayer's residence), may only claim his or her proportional share of qualified expenses for home heating fuel.
A qualifying taxpayer who owns a condominium or cooperative dwelling and for whom heat purchases are accounted for in a common area fee or special assessment for such costs, in addition to the qualified expenses for heating his or her own unit, may claim the amount of qualified expenses for home heating fuel as may be reasonably attributed to the percentage ownership share of the condominium or cooperative dwelling ( e.g., the condominium owner's percentage interest in the undivided interest of common areas and facilities).
A qualifying taxpayer who owns and dwells in a multi-purpose building, e.g., a storefront with an apartment above, may only claim the proportional share of the qualified expenses for home heating fuel that corresponds to the portion of the building used and occupied as a residence.
D. Renters. A qualifying taxpayer who rents a residential dwelling and who pays his or her own separate heating bill may claim the amount of qualified expenses for home heating fuel.
Heat Included in Rent. A qualifying taxpayer who rents a residential dwelling that is not individually metered, and where heating expenses are included in the rent, is eligible for the deduction. For purposes of the home heating fuel deduction, 20% of rent actually paid is considered attributable to heat. Computation of the amount of the deduction is a two-step process. First, for tax year 2005, the taxpayer must determine the amount of rent actually paid by the taxpayer for rent for November 1, 2005 through December 31, 2005. (In the case of multiple renters in a residential dwelling, the taxpayer uses only the amount of rent paid by him or her, not the total rent for the unit.) Second, the amount of actual rent paid (for November and December) is multiplied by 20% to determine the amount of the deduction. However, the deduction as calculated is subject to a maximum of $800.
Example. Mary, a single taxpayer with $45,000 in adjusted gross income, pays rent of $600 per month for November and December 2005, or $1,200 for the two-month period. Mary has a lease where heating expenses are included in rent. For purposes of the deduction, the amount of rent considered attributable to heat is $1,200 multiplied by 20%, or $240. Mary's deduction for home heating fuel is $240 for 2005.
Also, since Mary's allowable deduction was less than $800, Mary will be able to deduct an additional amount for the rent paid for the period from January 1 through March 31, 2006. In 2006, Mary has $47,000 in adjusted gross income and pays monthly rent of $610 per month for January 1 through March 31, 2006, or $1,830 for the three-month period. Mary's deduction for home heating fuel is $366 for 2006.
E. How to claim the deduction
A qualifying taxpayer may deduct the amount of qualified expenses for home heating fuel against Part B adjusted gross income. If the taxpayer does not have sufficient Part B adjusted gross income to apply the full amount of the deduction, the excess is deducted as follows. The excess, if any, of the qualified expenses for home heating fuel is first applied against Part A adjusted gross income, and any remaining excess is then applied against Part C adjusted gross income.
F. Nonresidents and Part Year Residents
Part year residents. The amount of the home heating fuel deduction is based on the actual amounts that were paid during the pertinent period while a Massachusetts resident, i.e., amounts purchased while a resident between November 1, 2005 and March 31, 2006.
Nonresidents. The amount of the home heating fuel deduction must be prorated based on the ratio of Massachusetts source income to the income that would have been taxed to the taxpayer had he or she been a Massachusetts resident for the taxable year. Nonresidents must multiply the amount of heating payments between November 1, 2005 and March 31, 2006 by the ratio found on line 14g of Form 1-NR/PY. The allocation ratio for nonresidents is the amount of Massachusetts source income divided by the Massachusetts gross income, determined as if the taxpayer had been a resident for the entire taxable year.
II. Credit for Purchase of Certain Energy-Efficient Heating Items; Personal Income Tax and Corporate Excise
A. Qualifying Taxpayers
Subject to certain limitations, a person or entity subject to taxation under G.L. c. 62 or G.L. c. 63 that is the owner of residential property located in Massachusetts may claim a credit in the amount of the net expenditure for energy-efficient heating items "purchased on or after November 1, 2005, but not later than March 31, 2006, for installation in said property." St. 2005, c. 140, §§ 15 and 16.
If eligible property is owned by two or more participants, the credit is available to each participant in proportion to the ownership interest of each in such property. Joint owners of residential property may share any credit claimed for energy-efficient heating items in the same proportion as their ownership interest in the residential property.
A taxpayer who owns a condominium or a cooperative dwelling ( i.e., the taxpayer is a stockholder in a cooperative housing corporation) and for whom such purchases are accounted for in a common area fee or special assessment against such costs may claim a proportionate share of the expenditure for energy-efficient heating items by such condominium association or cooperative housing corporation as may be reasonably attributed to the taxpayer's proportionate ownership share of the condominium or cooperative dwelling.
B. Net Expenditure for Energy-Efficient Heating Items
The Act defines "energy-efficient heating items" as follows:
"Energy efficient heating items" shall include, but not be limited to, home insulation, new window installation, advanced programmable thermostats, fuel efficient furnaces, boilers, oil, gas, propane, or electric heating systems, solar domestic hot water systems, materials for insulation or sealing of a duct, attic, basement, rim joint or wall and pipe insulation for heating systems.
To be a qualified purchase for purposes of the credit, the item purchased must be one of the items listed in the Act or the item must similarly relate to heat conservation, as opposed to some other type of energy-efficient items. Qualified purchases include only purchases of energy-efficient heating items made on or after November 1, 2005 but not later than March 31, 2006, and must be for installation in residential property located in Massachusetts. The credit is allowable if a taxpayer pays for energy-efficient heating items on or before March 31, 2006 but the installation takes place after March 31.
To calculate the net expenditure for energy-efficient heating items, the total amount of expenses for qualified purchases must be adjusted as follows. The total purchase price for qualified purchases plus installation costs must be reduced by the following amounts: (1) any credits received pursuant to the Internal Revenue Code, (2) any grants or rebates received from the United States Department of Housing and Urban Development, and (3) any rebates or discounts received from an electric utility or gas utility. The resultant amount is the net expenditure for purposes of the credit.
C. Amount of Credit
The maximum aggregate amount of the energy-efficiency heating credit that may be claimed by a qualifying taxpayer for the cost of energy efficient heating items is the lesser of 30% of the net expenditure for the qualifying purchases or $600 ($1,000 for a multi-unit dwelling).
For purposes of both the corporate excise and the personal income tax, the Act provides that a qualifying taxpayer is "allowed a one-time credit." St. 2005, c. 140, §§ 15(a) and 16. Thus, if a qualifying taxpayer owns more than one residential property located in Massachusetts ( e.g., two single family houses or two multi-unit dwellings), the maximum aggregate amount of the energy-efficiency heating credit is the lesser of 30% of the net expenditure for the qualifying purchases or $1,000.
Joint owners of a residential property must share any credit available to the property in the same proportion as their ownership interest.
D. Timing and carry-over of the credit.
The credit may be taken in taxable year 2005 or 2006, regardless of the exact date on which any qualifying purchases were made. The amount of credit that exceeds the total tax due for the taxable year in which the credit is taken may be carried over, as reduced, and applied against the tax liability for the next taxable year.
Personal Income Tax. The amount of the credit claimed may not exceed the taxpayer's personal income tax liability for that year.
Corporate Excise. The amount of the credit cannot reduce the corporate excise below the greater of the minimum excise or 50% of the excise before credits. G.L. c. 63, §§ 32(b), 32C, 39(b).
E. Limitations on the Credit
A taxpayer may not sell or transfer the energy-efficiency heating credit to another taxpayer.
Personal Income Tax. A taxpayer may not use the same expenses to claim both the energy-efficiency heating credit and the renewable energy source property credit (for certain solar energy and wind energy property - for more information, see the Department's regulation at 830 CMR 62.6.1).
Corporate Excise. A taxpayer may not use the same expenses to claim both the energy-efficiency heating credit and any other credit allowable under chapter 63.
III. Corporate Excise Credit for Solar Water Heating System in a Commercial Building
A. Qualifying Taxpayers
Subject to certain limitations, a taxpayer subject to the corporate excise may claim a credit for the aggregate cost of the purchase and installation of a solar water heating system in a commercial building. St. 2005, c. 140, § 9 amending G.L. c. 63 by inserting new section 38T.
An owner or lessee of a commercial building is eligible to claim the section 38T credit for qualifying property. However, a credit for the purchase and installation of a solar water heating system cannot be claimed by both the owner and the lessee of a commercial building; rather, the party that directly incurs the cost of the system is eligible to claim the credit.
B. Qualifying Property
In order to qualify for the credit, a solar water heating system must have been purchased between November 1, 2005 and March 31, 2006 for installation in a commercial building.
C. Amount of Credit
The credit for purchase and installation of a solar water heating system in a commercial building is the smaller of the following amounts:
- Fifteen percent of the aggregate cost of the purchase and installation of a solar water heating system, or
- $300.
D. Timing and carry-over of the credit
A credit allowed under section 38T for the purchase and installation of a solar water heating system in a commercial building between November 1, 2005 and March 31, 2006 may be applied for the taxable year 2006.
A taxpayer may apply the credit against the corporate excise beginning with the tax year of the qualifying purchase. The taxpayer may carry over and apply to the tax, in taxable year 2007, the portion of those credits that exceed the tax for taxable year 2006.
Section 38T is repealed as of January 1, 2008.
E. Limitations on the Credit
A taxpayer cannot claim multiple credits with respect to the same property.
A deduction under G.L. c. 63, § 38H is allowed with respect to the installation of any solar- or wind-powered climate control unit or water heating unit. The deduction is in lieu of any other credit or deduction for the same property for the taxable year or years of installation or conversion. See G.L. c. 63, § 38H(b)(1). Thus, a taxpayer cannot use the same expenses to claim both the credit at section 38T and the deduction at section 38H.
A taxpayer may not sell or transfer the energy-efficiency heating credit to another taxpayer.
The credit cannot reduce the excise below the greater of the minimum excise or 50% of the excise before credits. G.L. c. 63, §§ 32(b), 32C, 39(b).
/s/ Sheila T. LeBlanc
for Alan LeBovidge
Commissioner of Revenue
AL:JXD:adh
January 13, 2006
TIR 05-18