If your energy-efficient home improvement doesn't adhere to the latest rendition of the 2000 International Energy Conservation Code, you can forget those tax credits offered by the new Energy Policy Act of 2005.
The U.S. Treasury and the Internal Revenue Service recently issued guidance for home owners seeking tax credits on certain energy efficient home improvements. The guidance helps clarify provisions of the "Energy Policy Act of 2005 (EPACT)".
EPACT, the nation's most comprehensive new set of energy regulations in more than a decade gives consumers nearly $800 million in home-energy tax credits for 2006 and 2007 for money spent on a host of energy-efficient purchases and improvements from insulation to solar power systems.
A tax credit directly reduces your taxes due dollar-for-dollar. That is, if you owe $1,000 in taxes and your tax credits total $500 your tax bill is reduced by $500.
Federal tax regulators say the 10 percent credit for qualified energy improvements is available only when those improvements meet or exceed criteria established by the Department of Energy's "2000 International Energy Conservation Code" (including supplements), federal building codes for energy-efficient construction.
The feds say items eligible for the 10 percent tax credit are insulation systems that reduce heat loss/gain; exterior windows and skylights; exterior doors and metal Energy Star-compliant roofs.
Flat credits are available for costs relating to other expenses related to energy efficiency when the work is completed in the taxpayer's main home in the U.S.
The flat credits are $50 for each advanced main air circulating fan; $150 for each qualified natural gas, propane or oil furnace or hot water heater; a total of $300 for each item of qualified energy efficient property.
No more than a $200 credit is available for windows and the maximum credit for all taxable years, 2006 and 2007 is $500.
Under the provision that makes a credit available for solar panels and solar water heating equipment, taxpayers are allowed a credit equal to 30 percent of the qualified investment in a solar panel up to a maximum credit of $2,000. An equal credit is available for a solar water heating system. In both cases the systems cannot be used in any way to heat a pool or hot tub.
There is also a tax credit for qualified fuel cell power plant which converts a fuel into electricity using electrochemical means, has an electricity–only generation efficiency of more than 30 percent and generates at least 0.5 kilowatts of electricity.
Qualified fuel cell power plants come with a 30 percent tax credit up to a $500 credit for each 0.5 kilowatts of capacity.
For all the tax credits, the items must in service after Dec. 31, 2005 but before Jan. 1, 2008.
Tax credit guidance was also recently issued for home builders, appliance manufacturers and others.