New Tax Breaks for Energy Efficient Home Improvements

If you would like to make your existing homefor any advanced main air circulating fan;
more energy efficient and get some help payingUp to $150 for any qualified natural gas, propane
for the improvements, you need to know aboutor oil furnace or hot water boiler;
the Energy Tax Incentives Act of 2005. The newUp to $300 for any item of "energy-efficient
law provides a $500 lifetime credit against yourbuilding property." This includes certain qualifying
federal income tax for the cost of certainelectrical heat water pumps, electric heat pumps,
energy-saving home improvements that yougeothermal heat pumps, central air conditioners
make to your home after December 31, 2005and natural gas, propane or oil water
and before January 1, 2008. Up to $200 of theheaters.Expenditures for labor costs for onsite
tax credit may be applied to windows.As youpreparation, assembly or original installation may
may know, a tax credit is far more favorablebe included. Improvements must be installed in or
than a deduction of the same amount. Deductionsin connection with a dwelling unit located in the
only reduce the amount of income that is subjectUnited States that is owned by you and used by
to tax. A tax credit, on the other hand, is a dollaryou as your principal residence.There are energy
for dollar reduction of the tax due when you fileefficiency standards described in the new law that
your income tax return. So, if you are in the 28%your home improvements must meet, so some
income tax bracket, the new $500 credit isinvestigation on your part will be necessary to be
equivalent to a tax deduction of nearly $1800!Heresure that the improvements will qualify for the
are highlights of the new provisions:There is ancredit. For this reason, if you hire a third party to
overall lifetime cap on the credit of $500, and ado the work, your written agreement with the
maximum of $200 of the credit may be appliedcontractor should include the contractor's guaranty
to qualified window expenditures. Subject to thosethat the installed property will meet the energy
limitations, you may receive a credit for the sumefficiency standards of the new law.There is one
of the following:Building Envelope Components. Tenpotential trade-off, if you use the credit. Many
(10%) percent of your expenditures for so calledimprovements to your home will increase your
"building envelope components" will qualify for the"tax basis" in the property, and this increased tax
tax credit. Building envelope components includebasis may, in turn, reduce the amount of capital
the following:any insulation material or systemgain that is realized if you sell your home at a
which is specifically and primarily designed toprofit. The increase in tax basis that would
reduce the heat loss or gain of a dwelling unitotherwise result from energy efficient
when installed in or on such dwelling unit,improvements that qualify for the credit will be
exterior windows (including skylights),reduced by the amount of the allowed credit.
exterior doors, andSince the tax credit decreases your tax basis,
any metal roof installed on a dwelling unit, butyou are likely to have more capital gain at the
only if such roof has appropriate pigmentedtime of sale. This will not affect you if all of the
coatings which are specifically and primarilycapital gain realized at the time of sale is
designed to reduce the heat gain of such dwellingprotected by the $250,000 exclusion ($500,000
unit.To qualify for the credit, the building envelopefor married couples) for gains realized on the sale
components must be installed in or on a dwellingof your principal residence. But even if there is an
unit (including a manufactured home) located in theincrease in the taxable capital gain realized when
United States that is owned by you and used byyou sell your home, it will almost certainly be
you as your principal residence. Installation ofoutweighed by the advantage of using the new
envelope components in a second or vacationincome tax credit currently.Like so much of the
home or rental property therefore will not qualifyInternal Revenue Code, the new provisions
for the new tax break.Only new components areencouraging energy efficient home improvements
eligible for the credit and the components mustseem unnecessarily complicated, but we have to
reasonably be expected to remain in use for atconsider the source - Congress! However, a bit of
least 5 years.Energy efficient propertypatience and careful planning will bring you some
expenditures. Amounts paid for "residential energyvery real tax savings and help the environment to
property expenditures" will also qualify for theboot!
credit up to the following specific limits:Up to $50