April 2006

Energy Tax Credit Delivers Triple Punch

Reduces taxes, cuts energy bills and increases comfort

A new Federal tax credit for installing energy efficient measures is now available to homeowners and businesses.

The Energy Policy Act of 2005 provides tax credits for certain energy efficiency improvements installed between January 1, 2006 and December 31, 2007. The maximum credit is $500 with no more than $200 of the total credit available for windows.

Some eligible items that relate to building efficiency are:

• Insulation systems that reduce heat loss and gain
• Sealing the building envelope and duct system
• Exterior windows (including skylights), doors and pigmented metal roofs (must meet Energy Star requirements)
• Heat pump and water heating equipment

Air source heat pumps must be 15 SEER and 9 HSPF. Geothermal heat pumps must be14.1 EER and 3.3 COP and include an integrated water heating system. Heat pump water heaters must have an EF of at least 2.

Retailers and manufacturers should be able to tell you if their product qualifies. The improvements must be installed at the taxpayer's principal residence.

Businesses are eligible for building energy efficient buildings and improving the energy efficiency of commercial buildings.

This information is intended as a general overview only to increase awareness of the tax credits. To see if you qualify, get the relevant IRS forms and consult your tax advisor before purchasing.

Tax Credit vs. Tax Deduction

Most of us are familiar with tax deductions, like mortgage interest and medical expenses. A tax deduction lowers your taxable income, translating to saving a percentage of the dollars you spent. For example, $1000 in tax deductions might lower your actual tax bill by $300.

A tax credit is much more valuable. Tax credits reduce the amount of tax you pay dollar for dollar. So if you spend $100 on an item that qualifies for a tax credit, you lower the amount you pay the IRS by $100.

energytaxincentives.org

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