 Tax
breaks for energy savings
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 Dear
Tax Talk,
How far back can you claim an energy savings deduction? I replaced
the windows two years ago and the water heater a year ago. Thanks
for your help.
-- C. J. L.
 Dear
C. J. L.,
Unfortunately you're a little ahead of the game
on making the improvements that will garner you energy savings credits.
Beginning in 2006, you might be able to claim a new tax credit for
the purchase of qualified energy-efficiency improvements and property
to your existing home. You also may be able to claim a tax credit
for the purchase of residential solar water heating, photovoltaic
equipment or fuel cell property. This credit is only applicable
if you're contemplating solar water heating for something other
than a pool. In addition, contractors are eligible for tax credits
for making energy-efficient improvements to new homes.
Most folks will be looking at the credit for improvements
and property such as windows, insulation, roofing and certain appliances
(property) such as water heaters, furnaces and air conditioners.
For property installed in 2006 and 2007, there is a 10-percent nonrefundable
credit for the purchase of energy-efficiency building envelope components
that meet or exceed the criteria of the 2000 International Energy
Conservation Code in effect on Aug. 8, 2005 (or the Energy Star
program requirements for metal roofs with pigmented coatings). The
credit is also available for other specified property. Nonrefundable
means you won't get any money back, even if the amount of the credit
exceeds what you owe.
The credit allowed may not exceed $500 in total across
all tax years, and no more than $200 of the credit may be attributable
to expenditures on windows. Further, the credit is limited to $50
for each advanced main air-circulating fan, $150 for each qualified
natural gas, propane or oil furnace or hot water boiler, and $300
for each item of qualified energy-efficient property. In the case
of property (versus improvements) the amount is allowed as a credit,
dollar of dollar, up to the maximum allowed. For example, if you
buy a $300 energy-efficient water heater, you'll receive a $150
tax credit, which is the maximum for that category.
Building envelope components are:
- insulation materials or systems that are specifically and primarily
designed to reduce the heat loss or gain for a dwelling;
- exterior windows (including skylights) and doors; and
- metal roofs with appropriate pigmented coatings that are specifically
and primarily designed to reduce the heat loss or gain for a dwelling.
Ten percent of improvement costs qualify with a maximum
of $200 for the windows. The nuances of the rules are complex and
I hope will be easier to understand when IRS releases the 2005
Publication
553.
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