| If you would like to make your existing home | | | | for any advanced main air circulating fan; |
| more energy efficient and get some help paying | | | | Up to $150 for any qualified natural gas, propane |
| for the improvements, you need to know about | | | | or oil furnace or hot water boiler; |
| the Energy Tax Incentives Act of 2005. The new | | | | Up to $300 for any item of "energy-efficient |
| law provides a $500 lifetime credit against your | | | | building property." This includes certain qualifying |
| federal income tax for the cost of certain | | | | electrical heat water pumps, electric heat pumps, |
| energy-saving home improvements that you | | | | geothermal heat pumps, central air conditioners |
| make to your home after December 31, 2005 | | | | and natural gas, propane or oil water |
| and before January 1, 2008. Up to $200 of the | | | | heaters.Expenditures for labor costs for onsite |
| tax credit may be applied to windows.As you | | | | preparation, assembly or original installation may |
| may know, a tax credit is far more favorable | | | | be included. Improvements must be installed in or |
| than a deduction of the same amount. Deductions | | | | in connection with a dwelling unit located in the |
| only reduce the amount of income that is subject | | | | United States that is owned by you and used by |
| to tax. A tax credit, on the other hand, is a dollar | | | | you as your principal residence.There are energy |
| for dollar reduction of the tax due when you file | | | | efficiency 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 is | | | | investigation on your part will be necessary to be |
| equivalent to a tax deduction of nearly $1800!Here | | | | sure that the improvements will qualify for the |
| are highlights of the new provisions:There is an | | | | credit. For this reason, if you hire a third party to |
| overall lifetime cap on the credit of $500, and a | | | | do the work, your written agreement with the |
| maximum of $200 of the credit may be applied | | | | contractor should include the contractor's guaranty |
| to qualified window expenditures. Subject to those | | | | that the installed property will meet the energy |
| limitations, you may receive a credit for the sum | | | | efficiency standards of the new law.There is one |
| of the following:Building Envelope Components. Ten | | | | potential trade-off, if you use the credit. Many |
| (10%) percent of your expenditures for so called | | | | improvements 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 include | | | | basis may, in turn, reduce the amount of capital |
| the following:any insulation material or system | | | | gain that is realized if you sell your home at a |
| which is specifically and primarily designed to | | | | profit. The increase in tax basis that would |
| reduce the heat loss or gain of a dwelling unit | | | | otherwise 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, and | | | | Since the tax credit decreases your tax basis, |
| any metal roof installed on a dwelling unit, but | | | | you are likely to have more capital gain at the |
| only if such roof has appropriate pigmented | | | | time of sale. This will not affect you if all of the |
| coatings which are specifically and primarily | | | | capital gain realized at the time of sale is |
| designed to reduce the heat gain of such dwelling | | | | protected by the $250,000 exclusion ($500,000 |
| unit.To qualify for the credit, the building envelope | | | | for married couples) for gains realized on the sale |
| components must be installed in or on a dwelling | | | | of your principal residence. But even if there is an |
| unit (including a manufactured home) located in the | | | | increase in the taxable capital gain realized when |
| United States that is owned by you and used by | | | | you sell your home, it will almost certainly be |
| you as your principal residence. Installation of | | | | outweighed by the advantage of using the new |
| envelope components in a second or vacation | | | | income tax credit currently.Like so much of the |
| home or rental property therefore will not qualify | | | | Internal Revenue Code, the new provisions |
| for the new tax break.Only new components are | | | | encouraging energy efficient home improvements |
| eligible for the credit and the components must | | | | seem unnecessarily complicated, but we have to |
| reasonably be expected to remain in use for at | | | | consider the source - Congress! However, a bit of |
| least 5 years.Energy efficient property | | | | patience and careful planning will bring you some |
| expenditures. Amounts paid for "residential energy | | | | very real tax savings and help the environment to |
| property expenditures" will also qualify for the | | | | boot! |
| credit up to the following specific limits:Up to $50 | | | | |