Tax Tips |
Tax Tip
Energy Resources for Your Home
Find out how you can take advantage of the Energy Bill in your home.The Energy Tax Incentives Act of 2005 provides a credit for residential energy-efficient property as an incentive for you to make energy-wise choices when selecting new property to heat, cool, and provide energy for your home. In order to qualify, the new equipment must meet certain energy-saving specifications and be:
- Installed on or in your personal residence (principal residence for fuel cell property) in the United States, and
- Used to provide heating, cooling, or energy for your entire home, not just for a swimming pool or hot tub.
The credit is nonrefundable, meaning that the tax bill cannot be reduced below zero. However, any unused credit can be carried forward to the next year. The new credit can give you a significant tax break - and the energy improvements can reduce your annual heating and cooling costs.
What kinds of property qualify?
- Solar water heating property.
- Photovoltaic property that uses solar panel components to convert the sun's rays into energy.
- Fuel cell property, which is a system that generates power by converting fuel (usually hydrogen) into electricity.
Caution: If you build or buy a new home that is solar powered or utilizes other energy-efficient property, you will only qualify for the credit if you have contracted for and purchased the equipment separately.
How is the credit calculated?
The credit is the sum of 30% of expenditures up to:
- $2,000 for photovoltaic property.
- $2,000 for solar water heating property.
- $500 per half kilowatt of capacity for fuel cell property.
Example: Jane pays $6,500 to install solar equipment in her residence. She is eligible for a tax credit of $1,950 ($6,500 x 30%). Note: Jane's basis in her home is increased by $4,550 ($6,500 property cost - $1,950 credit claimed).
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