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Energy Policy 2005

The Energy Policy Act of 2005

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.

Tax Credits for Consumers:

Home Improvements

The Internal Revenue Service (IRS) has provided guidance for consumers: IRS Notice 2006-26.

Tax credits are available for many types of home improvements including adding insulation, replacement windows, and certain high efficiency heating and cooling equipment. See chart. 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, 2006 through December 31, 2007.

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. See the IRS Website for updated information.

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.

ENERGY POLICY ACT OF 2005
SUMMARY OF TAX CREDITS FOR HOMEOWNERS

Product Category

Product Type

Tax Credit Specification

Tax Credit

Notes

Windows & Doors

Exterior Windows and Skylights

ENERGY STAR qualified OR meets IECC¹

10 percent of cost, up to $200² for all windows, skylights and storm windows

All ENERGY STAR labeled windows and skylights qualify for tax credit.

  • Installation costs are not included.
  • For tax purposes, save your receipt and either the ENERGY STAR label from all your new windows OR the Manufacturer's Certification Statement.

Storm Windows

Meets IECC¹ in combination with the exterior window over which it is installed, for the applicable climate zone

10 percent of cost, up to $200² for all windows, skylights and storm windows

Manufacturer Certification Statement³ will list classes of exterior window (single pane, clear glass, double pane, low-E coating, etc.)4 that a product may be combined with to be eligible in specific climate zones.

Exterior Doors

Meets IECC¹

10 percent of cost, up to $500²

ENERGY STAR doors will almost always qualify, except for certain parts of California4.

Storm Doors

In combination with a wood door assigned a default U-factor by the IECC¹, and does not exceed the default U-factor requirement assigned to such combination by the IECC

10 percent of cost, up to $500²

Eligibility will be confirmed by manufacturer and documented in the Manufacturer Certification Statement³

Roofing

Metal Roofs

ENERGY STAR qualified

10 percent of cost, up to $500²

All ENERGY STAR labeled metal roofs qualify for the tax credit.

  • Must be expected to last 5 years OR have a 2 year warranty.
  • Installation costs are not included.
  • Manufacturer's Certification Statement³ required.
  • For tax purposes, save your receipt and the Manufacturer's Certification Statement.

Insulation

Insulation

Meets 2000 IECC & Amendments

10 percent of cost, up to $500²

  • For insulation to qualify, its primary purpose must be to insulate. (example: vapor retarders are covered, siding does not qualify).
  • Must be expected to last 5 years OR have a 2 year warranty
  • Installation costs are not included.
  • Manufacturer's Certification Statement³ required.
  • For tax purposes, save your receipt and the Manufacturer's Certification Statement.

HVAC

Central A/C

EER >12.5/SEER > 15 Split Systems

EER > 12/SEER > 14 Package systems

$300²

Note - not all ENERGY STAR products will qualify for the tax credit. The ENERGY STAR specification is:
EER > 11.5/ SEER > 14 Split systems
EER > 11/SEER > 14 Package systems

 

Air Source Heat Pumps

HSPF > 9 EER > 13 SEER > 15

$300²

Note - not all ENERGY STAR products will qualify for the tax credit. The ENERGY STAR specification is:
HSPF > 8.2 EER > 11.5 SEER > 14 Split systems
HSPF > 8 EER > 11 SEER > 14 Package systems

  • a href="http://www.energystar.gov/index.cfm?c=products.footnote">Manufacturer's Certification Statement³ required.
  • For tax purposes, save your receipt and the Manufacturer's Certification Statement.

Geo-Thermal Heat Pump

Same criteria as ENERGY STAR:
EER > 14.1 COP > 3.3 Closed Loop
EER > 16.2 COP > 3.6 Open Loop
EER > 15 COP > 3.5 Direct Expansion

$300²

All ENERGY STAR labeled geo-thermal heat pumps qualify for the tax credit.

Gas, Oil, Propane Furnace or Hot Water Boiler

AFUE > 95 for both furnaces and boilers

$150²

For a list of qualifying products go to the Gas Appliance Manufacturing Association

Note - not all ENERGY STAR products will qualify for the tax credit. The ENERGY STAR specification is:
AFUE > 90 for furnaces
AFUE > 85 for boilers

 

Advanced Main Air Circulating Fan

No more than 2 percent of furnace total energy use

$50²

For a partial list of qualifying products go to the Gas Appliance Manufacturing Association -

Water Heaters

Gas, Oil, Propane Water Heater

Energy Factor > 0.80

$300²

Only some tankless water heaters currently qualify. This is over 33 percent more efficient than the current federal standard.

For a partial list of qualifying products go to the Gas Appliance Manufacturing Association.

 

Electric Heat Pump Water Heater

Energy Factor > 2.0

$300²

This is more than twice as efficient as the current federal standard.

Cars

Cars

Hybrid gasoline-electric, diesel, battery-electric, alternative fuel, and fuel cell vehicles

Based on a formula determined by vehicle weight, technology, and fuel economy compared to base year models

Guidance for auto manufacturers is available from IRS.

There is a 60,000 vehicle limit per manufacturer before a phase-out period begins. Consumers who buy from companies that already sell large numbers of qualifying vehicles will experience a relatively short "window of opportunity" for the credits.

Solar Energy Systems

Solar Water Heating

  • At least half of the energy generated by the "qualifying property" must come from the sun. Homeowners may only claim spending on the solar water heating system property, not the entire water heating system of the household.
  • The credit is not available for expenses for swimming pools or hot tubs.
  • The water must be used in the dwelling.
  • The system must be certified by the Solar Rating and Certification Corporation (SRCC).

30 percent of cost, up to $2,000

Photovoltaic Systems

Photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirement.

30 percent of cost, up to $2,000

Fuel Cells

Fuel Cells

Efficiency of at least 30 percent and must have a capacity of at least 0.5 kW.

30 percent of the cost, up to $1000 per kW of power that can be produced

1 Either the 2001 Supplement of the 2000 International Energy Conservation Code or the 2004 Supplement of the 2003 International Energy Conservation Code.

2 Subject to a $500 maximum per homeowner for all improvements combined.

 

3A Manufacturer's Certification is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. The IRS encourages manufacturers to provide these Certifications on their website to facilitate identification of qualified products. Taxpayers must keep a copy of the certification statement for their records, but do not have to submit a copy with their tax return.

4Additional information on exterior window features may be viewed at Anatomy of an Energy Efficient Window.