Energy Act of 2005
You've no doubt
read media reports that Congress has passed the Energy Act of 2005. This new law carries many new and
substantial tax incentives for individuals to make energy saving improvements
to their homes. The incentives come in the form of tax credits, which reduce
your federal tax bill on a dollar-for-dollar basis. What's more, the credits
are not phased out at higher-income levels.
Here's an overview
of the new tax breaks you can look forward to next year. Keep in mind that you probably won't have to
determine for yourself whether a home improvement saves enough energy to
qualify for a tax credit. In all
likelihood manufacturers will certify, in the materials that come with their
products, whether equipment and materials create or save enough energy to
qualify for a tax credit.
New tax
credits for energy efficient improvements. You will be able to claim a
tax credit for buying an assortment of energy saving improvements and
installing them in your main home.
The credit per
improvement is:
- 10% of the cost of energy efficient building
envelope components. These consist of: insulation materials or systems
that reduce heat loss/gain; exterior windows (including skylights);
exterior doors; and certain metal roofs with special coatings designed to
reduce heat gain.
- Up to $300 tax credit for the cost of
energy-efficient building property (electric heat pump water heater,
electric heat pump; geothermal heat pump, central air conditioner, and
natural gas, propane, or oil water heater meeting specific energy
efficiency standards).
- Up to $150 credit for a natural gas, propane,
or oil furnace or hot water boiler.
- Up to $50 credit for an advanced main
air-circulating fan.
Your overall
lifetime tax credit for all of the above improvements is $500, but only $200 of
this credit amount may be for buying and installing energy-saving windows. Tax
credits for energy efficient improvements will only be available for equipment
placed in service in 2006 or 2007.
New tax
credits for solar and fuel-cell equipment. You will be able to claim a
tax credit each year for:
(1) 30% of the cost of equipment that uses solar
energy to generate electricity.
(2) 30% of the cost of solar water heating
equipment.
(3) 30% of the cost of a fuel cell power plant.
As you can see,
the Energy Act has created substantial tax incentives for homeowners to upgrade
and add equipment that generates electricity or uses less electricity or other
energy. For more details on how you and your residence will be affected, please
give our office a call.
