EXTENSION REPORT

Federal Tax Cuts for Energy Efficiency

The new federal Energy Policy Act of 2005 enables homeowners to claim a federal tax credit, up to a $500 household maximum, for qualified efficiency improvements installed in existing homes during 2006 and 2007.  Homeowners are eligible for a tax credit of up to $500 for 10 percent of the cost of qualified energy efficiency improvements to their homes.  For example, if a homeowner spends $800 to add proper insulation to their homes, they would qualify for a federal tax credit of $80.

This federal tax credit includes the following:

Exterior Windows

10 percent of the total cost, not to exceed $200, for newly installed energy efficient windows and skylights for replacement or remodeling.

Exterior Doors

10 percent of the total cost, not to exceed $500, for newly installed energy efficient doors (both glazed and opaque) for replacement or remodeling.

Insulation/Air duct sealing

10 percent of cost, not to exceed $500, newly installed insulation or air duct sealing for replacement or remodeling.

These credits apply to all qualified product installation in the home during the eligible time frame (January 1, 2006 through December 31, 2007).  Although windows may qualify for a total of $200 and doors $500, the total tax credit (including any other qualified products, such as insulation) is capped at $500 per household for the primary residence for the two-year period.

Installing an Energy Star qualified window, skylight or door certified in all 50 states is an easy solution to qualify for the tax incentive.

By promoting energy-efficient products, homes and buildings, Energy Star reduces energy use while helping businesses and consumers save money and protect the environment.  Besides lowering energy bills and reducing the pollution from power generation, Energy Star helps meet America’s energy needs and strengthen the U.S. economy.  In 2001 alone, consumers and businesses along with the help of the Energy Star program, saved 80 billion kilowatt hours and more than 10,000 megawatts of peak power – more than enough energy to power 10 million homes in the United States for one year.

The tax credit for existing homes requires that the building envelope component being renovated meets the energy efficiency minimum standards outlined in the 2004 International Energy Conservation Code (IECC).  The envelope is defined as the area along the perimeter of the home that separates the living space from the outside.

Energy Star is a program sponsored by the U.S. government.  Windows, glazed doors and skylights that are “Energy Star Qualified in All 50 States” meet the requirements of the IECC nationwide.  If the product is not “Qualified in All 50 States” it may still qualify for the tax credit.  The product should carry a label indicating that it meets the IECC air infiltration requirements.

As of the writing of this article, the Internal Revenue Service has not yet issued regulations detailing these credits.  Because rules have not been finalized, if a contractor is doing the work, get an itemized receipt that breaks out the cost of the product from the labor charge.  You will need to retain any receipts from the purchase of energy efficient products made between January 1, 2006 and December 31, 2007 to claim the credit.

There may be other documentation requirements to claim the credit.  For additional details visit the IRS Web site at and the U.S. Department of Energy Web site at .  Energy Star is a joint effort between the U.S. Environmental Protection Agency and the U.S. Department of Energy.  For more information on energy efficiency contact the Alabama Department of Economic and Community Affairs – Science, Technology and Energy Division, (800) 392 8098 or visit their Web site at .

This information is not intended as legal advice; you should consult your tax advisor for complete guidance.

Credit for this article is given to Wil Golden, Regional Extension Agent for the Eastern Region 3.   

Email address: gmusson@aces.edu
Phone: 937-7176 or 943-5611, 928-0860, ext. 2222

Issued in furtherance of Cooperative Extension work in agriculture and home economics, Acts of May 8 and June 30, 1914, and other related acts, in cooperation with the U.S. Department of Agriculture. The Alabama Cooperative Extension System (Alabama A&M University and Auburn University) offers educational programs, materials, and equal opportunity employment to all people without regard to race, color, national origin, religion, sex, age, veteran status, or disability.