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Federal Tax Credits for Energy Efficiency


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Federal Tax Credits for Energy Efficiency

The Energy Policy Act of 2005 provides valuable federal tax credits for consumers and contractors who make energy-efficiency upgrades to their homes or install this type of equipment during new construction. Homeowners or renters who have energy-efficient products in their facility enjoy multiple benefits. At home, these benefits include lower home energy bills, increased indoor comfort, and reduced air pollution. In addition to helping savvy consumers lower their energy bills, the energy-efficient products are eligible for new federal tax credits, which actually lower the amount of federal income taxes that homeowners or homebuilders must pay our government.

A tax credit can provide significant savings. It reduces the amount of income tax you have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a tax credit directly reduces the tax itself. The final rules and forms to clarify which products and services qualify for the tax credits will be developed by The Internal Revenue Service (IRS). You must refer to the final IRS rules to determine what qualifies for the tax credit. We will link to this information as soon as it is available.

Please note, not all ENERGY STAR qualified homes and products qualify for a tax credit. These tax credits are available for a number of products at the highest efficiency levels, which typically cost much more than standard products. If, for whatever reason, you decide not to purchase a product covered by the tax credit, you may still consider purchasing an ENERGY STAR product. ENERGY STAR distinguishes energy efficient products which, although they may cost more to purchase than standard models, will pay you back in lower energy bills within a reasonable amount of time, without a tax credit.

What Water Heaters Receive the Rebate?

Natural Gas, Propane Water Heater Energy Factor >= 0.82
or a thermal efficiency of at least 90%.
30% of cost, up to $1,5001

All ENERGY STAR gas tankless water heaters will qualify.

There are currently no ENERGY STAR qualified gas storage tank or gas condensing water heaters that qualify.

Electric Water Heaters Same criteria as ENERGY STAR: Energy Factor >= 2.0 30% of cost, up to $1,5001

Tax Credits for Consumers:

Home Improvements The Internal Revenue Service (IRS) has provided guidance for consumers: IRS Notice 2006-26 PDF >>

Tax credits are available for many types of home improvements including adding insulation, replacement windows, and certain high efficiency heating and cooling equipment. The maximum amount of homeowner credit for all improvements combined is $500 during the two year period of the tax credit. This tax credit applies to improvements made to your primary residence from January 1, 2009 through December 31, 2010.

Efficient Cars Tax credits are available to buyers of hybrid gasoline-electric, diesel, battery-electric, alternative fuel, and fuel cell vehicles. The tax credit amount is based on a formula determined by vehicle weight, technology, and fuel economy compared to base year models. These credits are available for vehicles placed in service starting January 1, 2006. For hybrid and diesel vehicles made by each manufacturer, the credit will be phased out over 15 months starting after that manufacturer has sold 60,000 eligible vehicles. For vehicles made by manufacturers that have not reached the end of the phase-out, the credits will end for vehicles placed in service after December 31, 2010.

Solar Energy Systems Tax credits are available for qualified solar water heating and photovoltaic systems. The credits are available for systems "placed in service" in 2006 and 2007. The tax credit is for 30 percent of the cost of the system, up to $2,000. This credit is not limited to the $500 home improvement cap.

Fuel Cells There is a consumer tax credit of up to 30 percent of the cost (up to $500 per 0.5 kW of capacity maximum) for installing a "qualified" fuel cell and microturbine systems. The credits are available for systems "placed in service" in 2006 and 2007. This credit is not limited to the $500 home improvement cap.

References

Federal Tax Credits for Energy Efficiency >>

Energy Policy Act of 2005 >>