Energy Tax Breaks Offer Tax Saving Opportunities

For the 2006 and 2007 tax years, homeowners can take a 10 percent tax credit (not just a deduction) for a wide range of energy-efficient building components for their principal residences.

Energy efficient purchases include:

*Insulation materials or systems that cut heating and cooling costs.

*Exterior windows (including skylights)

*Exterior doors.

*Certain metal roofs with special coatings designed to reflect heat.

To qualify for the above, homeowners must be the initial users of the equipment and the equipment must be expected to last at least five years.

In addition to the 10% credit, homeowners can claim a credit equal to 100 percent of the cost of:

*Energy efficient building components, such as electric heat-pump water heaters, electric heat pumps, geothermal heat pumps, central air conditioning, and natural gas, propane, or oil water heaters that meet energy efficiency standards. Maximum credit is $300.

*Natural gas, propane, or oil furnaces, or hot water boilers. Maximum credit is $150.

*Advanced main air-circulating fans. Maximum credit is $50.

Taxpayers’ overall lifetime credit for these improvements is limited to $500, but they can claim only $200 of the credit for buying and installing energy-saving windows.

To claim the credits, taxpayers have to fill out IRS Form 5695, Residential Energy Credits. If you didn’t make any energy efficient purchases in 2006, you can still do so in 2007 and claim the credit on your 2007 tax return.