New Homeowner and Energy Credits

Credits Under the Energy Savings Tax Act of 2005

Beginning in 2006, a number of new energy credits are available for individual taxpayers. As these credits are new, detailed information or forms to use were not available at the time this was written.

Tax Credit for Building Energy-Efficient Homes An eligible contractor who builds a qualified energy efficient home is eligible for a credit of up to $2,000 per home. To qualify for the credit:

• The building must be located in the United States.
• Construction must have been substantially completed after 8/8/2005.
• The structure must meet specific energy saving requirements.
• An eligible contractor is a person who constructs a new energy efficient home.
• The home must be acquired by a person from the eligible contractor for use as a residence during the tax year.

The $2,000 credit is available if there is a 50% reduction in the annual heating and cooling energy consumption of the residence. If the savings is less than 50% but more than 30%, a $1,000 credit is available. The home must have been acquired after 12/31/05 and before 2008.

Tax Credit for Energy Efficient Improvement to Existing Homes A taxpayer may claim a lifetime nonrefundable credit of up to $500 for making qualifying energy-saving improvements to his or her existing home. Only $200 of this amount can be used for qualifying window expenditures. This credit can be applied to property placed into service after 2005 and before 2008.

Category one expenditures are for energy efficient improvements to the building envelope. The credit is limited to 10% of cost. The building envelope is defined as:

• Insulation material or system designed to reduce heat loss or gain
• Exterior windows, including skylights
• Exterior doors
• Any metal roof installed on a dwelling unit if the roof has appropriately pigmented coatings designed to reduce heat gain in the dwelling unit.

Category two expenditures are for other residential energy property expenditures. The credit is dollar for dollar. These expenditures have specific dollar caps.

• $300 for energy efficient building property including an electric heat pump water heater; electric heat pump; geothermal heat pump; central air conditioning; natural gas, propane, or oil water heater meeting specific standards.
• $150 for qualified natural gas, propane, or oil furnace or hot water boiler.
• $50 for an advanced main air circulating fan used in furnaces only.

Tax Credit for Residential Energy Efficient Property - Solar and Fuel Cell Equipment A credit of up to $2,000 may be received for the purchase of residential energy property. This credit applies to property placed into service after 2005 with no specified termination date. The credit has three components:

• 30% of the amount paid for qualified photovoltaic property up to a $2,000 credit. Photovoltaic property is property that uses solar energy to generate electricity for use.
• 30% of the amount paid for qualified solar water heating property up to a maximum $2,000 credit. Solar water heating property is property that heats water for use in a personal residence if at least half the energy used by the property is derived from the sun.
• 30% of the amount paid for qualified fuel cell property up to a $500 credit for each .5 kilowatt of capacity. Qualified fuel cell property is a fuel cell power plant which is an integrated system converting fuel into electricity by electrochemical means with a electricity-only generation efficiency of more than 30%.

Tax Credit for Alternative Motor Vehicles There are four credits available for alternative motor vehicles:

• Qualified Fuel Cell Motor Vehicle Credit
• Advanced Lean-Burn Technology Motor Vehicle Credit
• Qualified Hybrid Motor Vehicle Credit
• Qualified Alternative Fuel Motor Vehicle Credit

The credits may be claimed by completing Form 8910.

The qualified fuel cell motor vehicle credit is for a motor vehicle that is propelled by power derived from one or more cells which convert chemical energy into electricity by combining oxygen with hydrogen fuel which is stored on board. This is available for vehicles placed in service after 12/31/2005 and before 12/31/2014.

The advanced lean-burn technology motor vehicle credit is available for a motor vehicle having an engine that is designed to operate primarily using more air than is necessary for complete combustion of the fuel; incorporates direct injection; achieves at least 125% of 2002 model year city fuel economy; and meets other technical conditions. It is effective for vehicles placed in service after 2005 and before 2010.

The qualified hybrid motor vehicle credit is the one that will be benefit more consumers. This credit is for vehicles that draw propulsion energy from onboard sources of stored energy which includes both an internal combustion engine and a rechargeable energy storage system. The vehicle must be purchased after 12/31/2005 and before 12/31/2010. The vehicle must be certified by the manufacturer as qualifying for the credit. The amount of the credit ranges from $650 to $3,150 depending of the vehicle purchased. A current listing of eligible vehicles and the credit available can be found on the IRS website, www.irs.gov. Other requirements to take the credit include:

• The original use of the vehicle must begin with the taxpayer claiming the credit. Used vehicles are not eligible for the credit.
• The vehicle must be acquired for use or lease by the taxpayer claiming the credit. If a qualifying vehicle is leased to a consumer, the credit may be claimed by the leasing company.
• The vehicle must be used primarily in the United States.

This credit begins to phase out in the second quarter after the calendar quarter in which at least 60,000 qualifying vehicles have been sold.

The credit for qualified alternative fuel vehicle refueling property is available for property that is used for recharging electric vehicles. This credit is 30% of the cost of any qualified alternative fuel vehicle refueling property placed in service during the tax year. It cannot exceed $30,000 for depreciable property or $1,000 for non-business property. Effective date for this credit is for property placed in service after 12/31/2005.