Guidance for Energy Tax Credits for Homeowners

 The Treasury Department and IRS issued guidance recently ( www.irs.gov/pub/irs-drop/n-06-26.pdf ) on certification that you may rely on, when claiming the energy tax credit for purchases that make your home more efficient.

You may be entitled to tax benefits for energy saving items that you bought for your home in 2006. Items such as insulation, exterior windows and doors, metal roofs (meeting applicable Energy Star requirements), qualified solar panels, solar water heating equipment, fuel cell power plant, or storm windows all will qualify for the tax credit if certain energy efficiency requirements are met. The rules are the same for 2007.

A recent tax law change provides a tax credit to improve the energy efficiency of existing homes. The law provides a 10 percent credit on qualified energy efficiency improvements. To qualify, a component must meet or exceed the criteria established by the "2000 International Energy Conservation Code" (including supplements) and must be installed in the taxpayer's main home in the United States.

In addition, the law provides a credit for costs relating to residential energy property expenses.  To qualify as "residential energy property", the property must meet certification requirements prescribed by the Secretary of the Treasury and must be installed in the taxpayer's main home located in the United States. It is your responsibility to ask the installer for the certification documents and I would recommend that you do so before you make the purchase if you plan on taking the tax credit.  In some cases I've heard that the installer will charge a fee for his additional expense relating to the certification process. 

The following items are eligible: 

1.      $50 credit for each advanced main air circulating fan.

2.      $150 credit for each qualified natural gas, propane, or oil furnace or hot water boiler.

3.      $300 credit for each item of qualified energy efficient property.

The maximum credit for all taxable years is $500 - no more than $200 of the credit can be attributable to expenses for windows.

You are allowed one credit equal to 30 percent of the qualified investment in a solar panel up to a maximum credit of $2,000, and another equivalent credit for investing in a solar water heating system. No part of either system can be used to heat a pool or hot tub.

You are also allowed a 30 percent tax credit for the purchase of qualified fuel cell power plants. The credit may not exceed $500 for each .5 kilowatt of capacity.

These items must be purchased and placed in service after Dec. 31, 2005 and before Jan. 1, 2008.