 Cooling
a tax bill with energy credits
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 Dear
Tax Talk,
If you have to replace the compressor on your air conditioning
system, can that big expense be written off at tax time? If so, what tax form
is used?
-- B
 Dear
B,
Congress figured that an air conditioner may keep you from getting
hot under the collar when you do your taxes so they came up with
an energy credit. The energy credit for home improvements applies
to purchases made in 2006 and 2007. You receive a credit up to a
certain limit. A tax credit can provide significant savings. It
reduces the amount of income tax you have to pay or increases your
refund dollar for dollar. Unlike a deduction, which reduces the
amount of income subject to tax, a tax credit directly reduces the
tax itself.
If you read the IRS
guidance on the energy credit, you'll come away not understanding
what it means. I think it was written by engineers. Various items
that make a home more energy efficient qualify for the credit. In
addition to air conditioners, you can receive a credit for windows,
doors, insulation and roofing. The credit is capped at $500 for
all years (2006 and 2007) for home energy-efficiency improvements.
The maximum credit available for an air conditioning
unit meeting the required energy-efficiency ratings, or EER, is
$300. Not all EnergyStar labeled products guarantee that the item
will qualify for the credit, so beware of the rules. The EnergyStar
Web site does an excellent job of describing the items qualifying
for credits in laymen's terms and the various levels of credits
available.
To ask a question on Tax Talk, go to the "Ask
the Experts" page and select "taxes" as the topic.
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