The two energy tax acts that
passed in August 2005
provide taxpayers several
opportunities for saving
money on their taxes if they
make certain improvements to
their home or if they buy
certain vehicles. As a tax
preparer, you will want to
know about the available tax
credits and how to identify
clients who qualify.
Residential Energy
Property Credit
Individual taxpayers can
claim up to $500 credit for
installing qualifying energy
efficient property in a
personal residence. $500 is
a lifetime credit, meaning
the total amount of credit
taken over a person’s
lifespan cannot exceed that
amount. The credit is
available on property placed
in service during the 2006
and 2007 tax years only.
There are two different ways
of qualifying for and
calculating the credit:
- 1. Improvements:
Receive 10% credit for
qualified energy
efficient improvements
to a building.
- 2. Purchases:
Receive 100% credit for
energy property
purchases. The maximum
dollar limit for
purchases is:
- a. $50 for each
advanced or main air
circulating fan.
- b. $150 for each
qualified natural
gas, propane or oil
furnace, or hot
water boiler.
- c. $300 for
qualified energy
efficient property
including heat
pumps, water
heaters, and central
air conditioners.
Residential Energy
Efficient Improvements
Individual taxpayers can
claim a 30% credit for the
following qualified energy
efficient improvements:
- 1. Photovoltaic
property expenditures or
technology using solar
cells to convert
sunlight into
electricity. The 30%
credit will be limited
to a maximum of $2,000
and applies to equipment
placed in service during
2006-2007.
- 2. Solar water
heating expenditures
typically consisting of
a solar collector and a
water storage tank. The
30% credit is limited to
a maximum of $2,000.
- 3. Fuel cell
expenditures or fuel
cells that use hydrogen
and oxygen to create
electricity. The 30%
credit is limited to a
maximum of $1,000. The
residential credit will
be available on property
placed in service in
2006 and 2007.
Additionally, the credit
cannot be taken against
AMT. Unlike the
Residential Energy
Property Credit, any
unused credit in 2006
can be carried forward
to 2007.
Alternative Motor Vehicle
Vehicles that use
alternative fuels or fuel
methods will also qualify a
taxpayer for one of the new
credits. Vehicles that use
one of the following four
criteria qualify:
- 1. Qualified fuel
cell motor vehicle.
- 2. Advanced lean
burn technology motor
vehicle.
- 3. Qualified hybrid
motor vehicle.
- 4. Qualified
alternative fuel motor
vehicle.
Unlike the Residential
Energy credit, the
Alternative Motor Vehicle
credit does not specify a
specific amount. Instead,
the monetary value of the
credit is based on several
factors. The IRS website
provides tables for use in
determining the credit
available for specific
vehicles as well as a list
of qualifying vehicles.
For more information on
additional credits,
definitions, and
limitations, visit the IRS
website at
www.irs.gov. Look for
IRS publications and
instructions in the text and
analysis of the Energy
Policy Act of 2005. |
