Tax Tips & Calculators

Saving energy could help you save on taxes, too. The Energy Tax Incentives Act of 2005 provides $14.5 billion in tax incentvies aimed at improving energy production and efficiency. Credits listed below are not allowed for the Alternative Minimum Tax (AMT).

Residential Energy Efficient Property

This nonrefundable credit, effective for tax years 2006 and 2007, is given to those who make energy-efficient improvements to existing homes located in the U.S. Qualifying property includes insulation, windows, doors, furnaces, hot water heaters and heat pumps that meet Energy Star program specifications.

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
  

Non-business Energy Property

This nonrefundable credit is for the purchase of energy-efficient improvements to existing homes located in the U.S. for tax years 2006 and 2007. Qualifying property includes insulation, windows, doors, furnaces, hot water heaters and heat pumps that meet Energy Star program specifications.

The credit is the sum of:

• 10% of qualified energy efficient improvement costs (insulation, doors and certain metal roofs)
  
• 10% of the cost of qualifying windows, up to a maximum credit of $200
  
• 100% of residential energy property expenses, subject to $150 limit for a furnace or hot water boiler, $50 limit for a circulating fan, and $300 limit for other property
  

Unlike other credits, this provision has a $500 maximum lifetime limit.

Fuels from Non-conventional Sources

The Energy Act of 2005 created a new credit (effective for tax years 2006 through 2008) for qualifying production of fuels from agricultural biomass (plant material).

This credit is $1.00 per gallon of agri-biodiesel fuel produced. There is also a new $.10 per gallon credit for small producers of agri-biodiesel fuels. The credit becomes part of the general business credit, which allows a 1-year carryback and 20-year carryforward previously not allowed.

Renewable Energy Resources Credit

The credit for electricity produced from renewable energy resources is expanded to include Indian coal facilities and qualified hydropower facilities. The new law also extends certain provisions of the existing renewable energy credit.

The credit for Indian coal is $1.50 per ton through 2009 and $2.00 per ton after 2009. The credit for hydropower production is $.95 per kilowatt hour of electricity produced.

The credit is effective for qualified facilities placed in service on or after Aug. 8, 2005 and before Jan. 1, 2008. The credit can be claimed by the facility for 10 years thereafter (7 years for Indian coal facilities).

New Home Energy Efficiency

Effective for tax years 2006 and 2007, this is a general business credit for contractors who construct new energy-efficient homes in the U.S. Eligible homes include single family dwellings, houseboats, house trailers and apartment buildings.

The amount of the available credit depends on the projected reduction in heating and cooling costs over comparable dwellings:

• $1,000 for homes with a projected 30% cost savings.
  
• $2,000 for homes with a projected 50% cost savings.
  

Solar Investment

This business credit is for the installation of qualifying solar energy property including fiber optic equipment that uses solar energy to light the interior of a building and solar property that is used to heat or cool a building or provide hot water. It's effective for appliances manufactured in 2006 and 2007. Equipment used on swimming pools does not qualify. The credit amount is 30% of qualifying costs.

Energy-efficient Appliances

This is a business credit for the production of energy efficient clothes washers, refrigerators and dishwashers. The credit doesn't apply to the purchase of these appliances, but the manufacturer may pass the credit on to the consumer in the form of a reduced price.

Credit amounts are as follows:

• $75 to $125 for refrigerators
  
• up to $100 for dishwashers
  
• $100 for washing machines
  

Fuel Cells and Microturbine Power Plants

This nonrefundable credit applies to qualified equipment installed on commercial buildings, including rental property. This credit is in effect for tax years 2006 and 2007, and the property must be placed in service after 2005.
A fuel cell uses electromechanical means to convert fuel into electricity. A microturbine converts fuel into electricity and thermal energy.

The credit amounts are as follows:

• 10% of expenses up to a maximum of $200 per kilowatt of capacity for microturbine power plants
  
• 30% of expenses up to a maximum credit of $500 per half kilowatt of capacity for fuel cell property
  

Energy-efficient Commercial Building Property

Unlike the other provisions, this benefit comes in the form of a deduction for amounts paid or incurred for energy efficient building property installed in connection with the construction of commercial, depreciable property in the U.S. Energy efficiency requirements include reduced cost for interior lighting, heating, cooling, hot water and ventilation systems. The installation must be part of a certified plan. Property must be placed in service in 2006 and 2007.

The deduction is limited to $1.80 per square foot of affected property. A partial deduction may apply in some cases.