Tax Credits Available For Individuals

Who Make Their Homes More Energy Efficient

During 2006, individuals can make energy-conscious purchases that will provide tax benefits when filling out their tax returns next year.

A new law provides tax credits for making a principal residence, which must be in the United States, more energy efficient and for buying certain energy efficient items.

“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,” said IRS spokeswoman Dianne Besunder.

A recent tax law change, Energy Policy Act of 2005, provides a tax credit to improve the energy efficiency of existing homes. The law provides a ten percent credit for buying qualified energy efficiency improvements. To qualify, improvements must be installed in or on the taxpayer’s principal residence in the United States.

The following items are eligible: insulation systems that reduce heat loss/gain; exterior windows, including skylights; exterior doors; and metal roofs meeting applicable Energy Star requirements.

In addition, the law provides a credit for costs relating to residential energy property expenses. To qualify as residential energy property, the improvements must be installed in the taxpayer’s main home in the United States.

The following items are eligible: $50 for each advanced main air circulating fan; $150 for each qualified natural gas, propane, or oil furnace or hot water heater; and $300 for each item of qualified energy efficient air conditioning or heating equipment.

The maximum credit for all taxable years is $500, and no more than $200 of the credit can be attributable to expenses for windows.

Additionally, the new law makes a credit available to those who add qualified solar panels, solar water heating equipment, or a fuel cell power plant to their homes in the United States. In general, a qualified fuel cell power plant converts a fuel into electricity using electrochemical means, has an electricity-only generation efficiency of more than 30 percent, and generates at least 0.5 kilowatts of electricity.

Taxpayers are allowed one credit equal to 30 percent of the qualified investment in a solar panel up to a maximum credit of $2,000, and another equivalent credit for investing in a solar water heating system. No part of either system can be used to heat a pool or hot tub.

Additionally, taxpayers are also allowed a 30 percent tax credit for the purchase of qualified fuel cell power plants. The credit may not exceed $500 for each .5 kilowatt of capacity.

These items must be placed in service after December 31, 2005, and before January 1, 2008.

For more information go to the IRS website, IRS.gov, or the US Department of Energy website, energy.gov, and use the term Energy Policy Act Tax Credits in the keyword search feature.