Home Energy Efficiency Improvement Tax Credits

Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in the home can receive a tax credit of up to $500 beginning in January 2006.



The EPACT also provides a credit equal to 30 percent of qualifying expenditures for purchase for qualified photovoltaic property and for solar water heating property used exclusively for purposes other than heating swimming pools and hot tubs. The credit shall not exceed $2,000.



Improvements must be installed in or on the taxpayer's principal residence in the United States. Home improvement tax credits apply for improvements made between Jan. 1, 2006 and Dec. 31, 2007. Signed by President Bush on Aug. 8, 2005, the Energy Policy Act of 2005 (EPACT) offers consumers and businesses federal tax credits beginning in January 2006 for purchasing fuel-efficient hybrid-electric vehicles and energy-efficient appliances and products. Most of these tax credits remain in effect through 2007.



Buying and driving a fuel-efficient vehicle and purchasing and installing energy-efficient appliances and products provide many benefits such as better gas mileage—meaning lower gasoline costs, fewer emissions, lower energy bills, increased indoor comfort and reduced air pollution.



Some consumers will also be eligible for utility or state rebates, as well as state tax incentives for energy-efficient homes, vehicles and equipment. Each state's energy office Web site may have more information on specific state tax information.



Tax credits are generally more valuable than an equivalent tax deduction because tax credits reduce tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. Beginning in tax year 2006, consumers will be able to itemize purchases on their federal income tax form, which will lower the total amount of tax they owe the government.



Home Energy Efficiency Improvement Tax Credits

Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in the home can receive a tax credit of up to $500 beginning in January 2006.



The EPACT also provides a credit equal to 30 percent of qualifying expenditures for purchase for qualified photovoltaic property and for solar water heating property used exclusively for purposes other than heating swimming pools and hot tubs. The credit shall not exceed $2,000.



Improvements must be installed in or on the taxpayer's principal residence in the United States. Home improvement tax credits apply for improvements made between Jan. 1, 2006 and Dec. 31, 2007.



Buildings

Credit for business installation of qualified fuel cells, stationary microturbine power plants, and solar equipment. This provides a 30 percent tax credit for the purchase price for installing qualified fuel cell power plants for businesses, a 10 percent credit for qualifying stationary microturbine power plants and a 30 percent credit for qualifying solar energy equipment. This is effective Jan. 1, 2006 through Dec. 31, 2007.



Business credit of energy-efficient new homes. This provides tax credits to eligible contractors for the construction of a qualified new energy-efficient home. Credit applies to manufactured homes meeting ENERGY STAR criteria and other homes, saving 50 percent of the energy compared to the EPACT standard. This is effective Jan. 1, 2006 through Dec. 31, 2007.



Energy-efficient Commercial building deduction. This provision allows a tax deduction for energy-efficient commercial buildings that reduce annual energy and power consumption by 50 percent compared to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) 2001 standard. The deduction would equal the cost of energy-efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. Additionally, a partial deduction of 60 cents per square foot would be provided for building subsystems.



Energy-efficient appliances. This provides a tax credit for the manufacturer of energy-efficient dishwashers, clothes washers and refrigerators. Credits vary depending on the efficiency of the unit. This is effective for appliances manufactured in 2006 and 2007.



Business Tax Credits

Businesses are eligible for tax credits for buying hybrid vehicles, for building energy-efficient buildings, and for improving the energy efficiency of commercial buildings (as outlined in the EPACT).



Biodiesel/Alternative Fuels

Small producer biodiesel and ethanol credit. This credit will benefit small agri-biodiesel producers by giving them a 10 cent per gallon tax credit for up to 15 million gallons of agri-biodiesel produced. In addition, the limit on production capacity for small ethanol producers increased from 30 million to 60 million gallons. This is effective until the end of 2008.



Credit for installing alternative fuel refueling property. Fueling stations are eligible to claim a 30 percent credit for the cost of installing clean-fuel vehicle refueling equipment, (e.g. E85 ethanol pumping stations). Under the provision, a clean fuel is any fuel that consists of at least 85 percent ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen and any mixture of diesel fuel and biodiesel containing at least 20 percent biodiesel. This is effective through Dec. 31, 2010.



Below is a table of anticipated tax savings and energy savings for energy-efficient home improvements (as of November 2005):



Product Category





Product Type





Tax Credit Specification





Tax Credit



Windows





Exterior windows





Meet 2000 IECC & Amendments





10 percent of cost not to exceed $200 total



Skylights





Meet 2000 IECC & Amendments





10 percent of cost not to exceed $200 total



Exterior doors





Meet 2000 IECC & Amendments





10 percent of cost not to exceed $500 total



Roofing





Metal roofs





ENERGY STAR qualified





10 percent of cost not to exceed $500 total



Insulation





Insulation





Meet 2000 IECC & Amendments





10 percent of cost not to exceed $500 total



HVAC





Central AC





EER 12.5/SEER 15 split systems EER 12/SEER 14 package systems





$300



Air source heat pumps





HSPF 9 EER 13 SEER 15





$300



Geothermal heat pump





EER 14.1 COP 3.3 closed loop



EER 16.2 COP 3.6 open loop



EER 15 COP 3.5 direct expansion





$300



Gas, oil, propane water heater





Energy Factor 0.80





$300



Electric heat pump water heater





Energy Factor 2.0





$300



Gas, oil, propane furnace or hot water boiler





AFUE 95





$150



Advanced main air circulating fan





No more than 2% of furnace total energy use





$50