Home Energy-Efficiency Improvement Tax Credits

If you are installing enery efficient windows or products to your home, you may be able to take advantage of the following tax credits. Although these credits are not much, any offset in taxes are welcome.

You can get a one-time income tax credit of up to $500 in total for installing efficient new windows, insulation, doors, roofs, and heating and cooling equipment in your home.
Who gets it? Individuals who install specific energy-efficient home improvements.
What energy-efficient home improvements are eligible? The overall $500 cap can be reached in several ways with the purchase and installation of energy-efficient products:

· Exterior windows: 10 percent of the total cost, up to $200. Includes skylights and storm windows.

· Insulation, exterior doors, or pigmented metal roofs: 10 percent of the cost of the product (but not the installation), up to $500. Includes seals to limit air infiltration, such as caulk, weather stripping, and foam sealants, as well as storm doors.

· Central air conditioner, heat pump, or water heater: up to $300 towards the full purchase price, including installation costs.

· Furnace or boiler: up to $150 towards the full purchase price, and/or $50 for an efficient air-circulating fan in a furnace, including installation cost. Section 6.4 of this document contains the detailed criteria for heating and cooling equipment.

In addition, to be eligible for the federal tax credits:

· Windows, doors, and insulation must meet the requirements for your region of the 2001 or 2004 International Energy Conservation Code, a model energy code for buildings. All ENERGY STAR windows qualify.

· Metal roofs must have pigmented coatings that meet ENERGY STAR requirements.

· Heating and cooling equipment must meet stringent efficiency requirements – not even all ENERGY STAR products will qualify. Section 6.4 of this document contains the detailed criteria for heating and cooling equipment.

In addition, windows, doors, insulation, and roofs must be expected to last at least five years (a two-year warranty is sufficient to demonstrate this).
Manufacturers can certify (in packaging or on the company’s web site) which of their products qualify for the tax credit. Retailers, contractors, and manufacturers should be able to help you determine what levels of insulation and what other products qualify.
All the improvements must be installed in or on the taxpayer’s principal residence in the United States. Condo and co-op improvements are apportioned to the owners. The credit cannot be taken against the Alternative Minimum Tax (AMT).
When are they available? The home improvement tax credits apply for improvements “placed in service” from January 1, 2006, through December 31, 2007. They are not available in 2005. The IRS defines “placed in service” as when the products or materials are ready and available for use – this would generally refer to the installation, not the purchase.
What do I need to do to get the tax credit? You will need to file the appropriate IRS form with your taxes. In addition, you will need to keep at least receipts proving that you purchased the improvements and a copy of the manufacturer’s certification (or the ENERGY STAR label for windows). Accountants and tax advisors should also be able to provide more guidance.

· NEW: IRS interim guidance for claiming home energy efficiency tax credits

Visit the association to save energy www.ase.org for more information.

6.4. Criteria for heating and cooling equipment

In order to be eligible for the tax credit, heating and cooling equipment must meet specified measures of energy efficiency:

Central air conditioners must be in the highest efficiency tier set by an organization called the Consortium for Energy Efficiency for 2006 – seasonal energy efficiency ratio (SEER) of at least 15 and an energy efficiency ratio (EER) of at least 12.5 for most air conditioners. This is about 15 percent more efficient than the federal standard that went into effect in January 2006. Individuals can search for qualifying products on the, Consortium for Energy Efficiency’s Web site.

Electric heat pumps must be 15 SEER and 13 EER and must have a heating seasonal performance factor (HSPF) of at least 9.
Geothermal heat pumps must meet current ENERGY STAR criteria – for a closed-loop system, 14.1 EER and a coefficient of performance (COP) of at least 3.3. For an open-loop system, the criteria are 16.2 EER and 3.6 COP. For a direct expansion system, 15 EER and 3.5 COP. In addition the geothermal heat pumps must include a desuperheater, which helps heat water, or an integrated water heating system.

Natural gas, propane, or oil water heaters must have an energy factor (EF) of at least 0.80. This is about 20 percent more efficient than the current federal standard. Only some tankless water heaters currently reach this efficiency level.
Electric heat pump water heaters must have an EF of at least 2.0. This is more than twice as efficient as the current federal standard. There is no credit for other kinds of electric water heaters.

Natural gas, propane, or oil furnaces and boilers must have at least a 95 percent annual fuel utilization efficiency (AFUE) to qualify for the $150 credit. To qualify for the $50 tax credit, the furnace air-circulating fan must use no more than 2 percent of the total annual energy use of the furnace.