Energy Upgrade Tax Credits Good Through 2007

Take Advantage of the Home Energy Tax Credits  

The Energy Policy Act of 2005 offers homeowners and builders federal tax credits for purchasing and installing energy efficient upgrades in their homes. Though it’s probably too late to be of any help on your 2006 taxes unless you have filed an extension, you should know that these tax credits remain in effect through 2007.  Keep in mind also that a tax credit is generally more valuable than an equivalent tax deduction because it reduces your tax liability dollar-for-dollar.  

In addition to the federal tax credits, you may also be eligible for local utility incentives, state and local grants and rebates, as well as state tax incentives for energy efficient homes, vehicles and equipment.  You should consult your local utilities or state government to find out information related to benefits specific to your area.

Home Energy Efficiency Improvement Tax Credits

Consumers who purchase and install specific energy efficient products, such as windows, insulation, doors, roofs, and heating and cooling equipment in the home can receive a tax credit up to $500.  One catch here, however, is that no more than $200 of the tax credit can come from energy efficient window upgrades alone.

The energy act also allows for an additional tax credit equal to 30% or a maximum of $2000 for purchases of qualified photovoltaic and solar water heating equipment .  There is one catch on this one as well though – to be eligible for the credit the solar equipment can not be used to heat your pool or hot tub.  

All of the above improvements must be installed in or on the property of your principal residence in the United States.  Also, as the law is currently written the maximum tax credits listed above are a lifetime credit.  If you maxed out these tax credits in 2006, additional energy efficient upgrades in 2007 will net you no further federal tax credits.

Though the actual technical qualification criteria can be complicated, don’t be intimidated.  According to the IRS, for purposes of taking the federal tax credit you may rely upon a manufacturer’s written certification that a product is qualified residential energy property.   From our experience, most manufacturers make this information readily available on their websites.  However, should you have any doubts, we recommend getting verification in writing before making any purchases.  Though the vast majority of dealers are honest, we strongly encourage you not to rely on the word of a salesperson alone as their primary interest is in making a sale, not providing free tax advice. 

For those of you more technically minded, you'll find a table listing the specific energy efficiency standards required for a given product to qualify for the federal tax credit on the next page.  In addition, a number of publications are available on the IRS website should you have any concerns regarding the details of the tax code itself.