Introduction to Federal Tax CreditsThe Energy Policy Act of 2005, the new national energy law signed by President Bush on August 8, 2005, provides valuable federal tax credits for consumers who make certain, specified energy-efficiency upgrades to their homes. In addition to helping savvy consumers lower their energy bills at home, the energy-efficient products eligible for the new federal tax credits actually lower the amount of federal income taxes that these taxpayers must pay Uncle Sam. What is a tax credit?You don’t receive an income tax credit when you buy the product, like an instant rebate. You claim the credit on your federal income tax form at the end of the year. The credit then increases the tax refund you receive or decreases the amount you have to pay. Please note:We at Northern Virginia Home Energy assessmentsare experts on energy efficiency, not taxes, and we do not provide tax advice; you may want to consult a tax professional. Home Energy-Efficiency Improvement Tax CreditYou can get a one-time 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 (including skylights) 10 percent of the total cost, up to $200. • Insulation, exterior doors, or pigmented metal roofs: 10 percent of the total cost, up to $500. Duct sealing and weather stripping or foam sealants may also qualify for the credit, depending on the IRS rules. • Central air conditioner, heat pump, or water heater: up to $300 towards the full purchase price. • Furnace or boiler: up to $150 towards the full purchase price, and/or $50 for a furnace with an efficient air circulating fan. In addition, to be eligible for the federal tax credits: • Windows, doors, and insulation must meet the requirements of the International Energy Conservation Code. • Heating and cooling equipment must meet stringent efficiency requirements Manufacturers and retailers likely will be able to tell you which products qualify. All the improvements must be installed in or on the taxpayer’s principal residence in the United States. 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? The IRS will write rules on how to claim the tax credit and publish any necessary forms. At the least, you will need to keep receipts proving that you purchased the improvements. Additional information is available on the IRS website.
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