Beginning in 2006, individuals will be allowed to
claim a nonrefundable credit for the purchase of energy-efficient
improvements such as insulation, windows, doors, furnaces, hot water
heaters, and heat pumps and metal roofs. All property must meet
Energy Star program specifications to qualify.
What kinds of property qualify?
Expenses must be for new property installed in or on a dwelling
unit located in the U.S. and used by the taxpayer as his principal
residence. There are two types of qualifying improvements:
1. Qualified energy-efficiency improvements,
which include insulation, exterior doors and windows, and certain
metal roofs.
2. Residential energy property includes an
advanced main air circulating fan, a qualified natural gas, propane,
or oil furnace or hot water boiler, and other energy-efficient building
property.
How is the credit calculated?
The credit is the sum of:
10% of qualified energy efficient insulation, doors,
and qualifying metal roofing.
10% of the cost of qualifying windows, up to
a maximum credit of $200.
100% of residential energy property expenses, subject
to dollar limitations: $150 for a furnace or hot water boiler, $50
for a circulating fan, and $300 for other property.
Important: There is a $500 maximum lifetime limit on this credit.
Example: Manfred pays $1,200 to install energy-efficient
insulation and $800 for a qualified natural gas hot water boiler
for his principal residence. He is eligible for a credit of $270
($1,200 qualified energy efficiency improvement x 10% + qualified
energy property limited to $150 for the boiler). Manfred has $230
remaining available credit for other energy efficient property he
purchases in 2006 or 2007.
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