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On January first of this year, the Energy Tax Incentives Act of 2005 took effect. If you're in the market for new energy efficiency home improvements such as windows, insulation, doors, roofs, or heating and cooling equipment for your home and plan to spend the money in 2006 or 2007 you may qualify for federal tax credits. In general, the tax cuts offer a 10 percent credit for money spent on an existing home for insulation systems that reduce heat loss; exterior energy-efficient windows, including skylights; exterior doors and metal roofs that meet applicable Energy Star requirements. You need to read the rules carefully, however, or the IRS will be kicking back your 1040 with some unpleasant surprises. For the standard stuff, residents can get a one-time energy tax credit of up to $500 for the purchase of qualifying energy-efficient home improvements. That credit is limited to 10% of any particular item, and does not include installation costs. The particulars of the energy efficiency home improvements that fall under this legislation include exterior windows: 10 percent of the total cost, up to $200. Insulation, exterior doors, or pigmented metal roofs: will get you a credit of up to $500. This category of energy efficiency home improvement includes seals to limit air infiltration, such as caulk, and storm doors. The energy tax credit applies to a central air conditioner, heat pump or water heater: up to $300 toward the full purchase price, including installation. For a furnace or boiler the credit is up to $150 toward the full purchase price, and/or $50 for an efficient air-circulating fan in a furnace, including installation cost. This is a one time deal, available in 2006 and 2007 only. If you end up taking a $200 energy credit for windows in 2006, you're not going to qualify for another tax credit in 2007 if you spend more money on more windows next year. And remember, this is a 10% energy tax credit. Suppose you spend $2,000 on new windows. $1,200 of that is labor, so the credit doesn’t apply there. The hardware cost you $800, so you get a 10% tax credit on the new glass. That’s eighty bucks. There’s an overall lifetime limit of $500 in energy tax credits for smaller energy efficiency home improvements such as insulation, doors and windows. So you’d have to spend $5,000 on the materials alone in order to realize that ten percent, $500 maximum tax credit Energy efficiency home improvements also apply only to the taxpayer’s principal residence. The credit would not cover energy-efficient windows or insulation bought for a vacation home or cottage. There are additional qualifications: homeowners should understand that energy tax credits are available for qualified solar water heating and photovoltaic systems. The tax credit is for 30 percent of the cost of the system, up to $2,000. This credit is not limited to the $500 home improvement cap. The legislation is very specific on what is allowed and to what amount. Labor is allowed in some instances, not in others. It’s important to do your homework on this one, and not depend on what a contractor tells you.
For further information on energy efficiency home improvements and other potential credits such as for hybrid automobiles, visit http://www.energytaxincentives.org/
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