Federal Tax Credits
(excerpt from U.S. Department of Energy web site May 16, 2006)
The Energy Policy Act of 2005
The Energy Policy Act of 2005 (EPACT), signed by President Bush on August 8, 2005, 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.
About Tax Credits
A tax credit is generally more valuable than an equivalent tax deduction because a tax credit reduces 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% 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 $2000.
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 January 1, 2006 and December 31, 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 Energy Policy Act of 2005).
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% of the energy compared to the EPACT standard. This is effective January 1, 2006 through December 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% 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.
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% of cost not to exceed $200 total|
|Skylights||Meet 2000 IECC & Amendments||10% of cost not to exceed $200 total|
|Exterior Doors||Meet 2000 IECC & Amendments||10% of cost not to exceed $500 total|
|Roofing||Metal Roofs||Energy Star qualified||10% of cost not to exceed $500 total|
|Insulation||Insulation||Meet 2000 IECC & Amendments||10% of cost not to exceed $500 total|
|HVAC||Central AC||EER 12.5/SEER 15 split Systems EER 12/SEER 14 package systems||$300|