Uncle Sam Wants (To Pay) You for Energy Efficient Appliances – On the House

Uncle Sam Wants (To Pay) You for Energy Efficient Appliances

By on September 1, 2015

Have high utility bills have been busting your monthly budget? Heating your water and heating and cooling your home are now more affordable thanks to the enacted Energy Bill. The Energy Policy Act of 2005 (EPACT), signed by President Bush in August 2005, offers consumers federal tax credits that began in January 2006 for purchasing energy-efficient appliances and products. The Energy Bill was established in part to help the U.S. better manage its energy consumption. Thus, the Bill incorporates incentives for American consumers to embrace new energy-conscious technologies and products.

Consumers who purchase and install specific residential energy-efficient products, such exterior windows and doors, insulation, heat pumps, furnaces, central air conditioners, water heaters and roofing can receive a one-time tax credit of up to $500. Read our lips! We didn’t say tax deduction, we said tax credit! The difference can be significant.

A tax credit is generally more valuable than an equivalent tax deduction because a tax credit reduces tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. Beginning in tax year 2006, consumers will be able to itemize purchases on their federal income tax form, which will lower the total amount of tax they owe the government. Most of these tax credits will remain in effect through 2007, with potential for renewal beyond this date. In addition to the Federal tax credit, some consumers will also be eligible for utility or state rebates, as well as state tax incentives for energy-efficient homes and equipment. Contact your local state’s energy office web site for specific state tax information.

Keep in mind that all improvements must be installed in or on the taxpayer’s principal residence in the United States and the improvements much be made between January 1, 2006 and December 31, 2007. For the purpose of calculating the allowable tax credit, labor costs may be included in the total cost of the energy upgrade. Some restrictions may apply.

The following is a list of products that qualify and the associated tax credit for each item.
• Exterior windows (including skylights): 10 percent of the total cost, up to $200.
• Insulation, exterior doors, or pigmented metal roofs: 10 percent of the total cost, up to $500. Duct sealing and weather stripping or foam sealants may also qualify for the credit, depending on the IRS rules.
• Central air conditioner, heat pump, or water heater: up to $300 toward the full purchase price. This credit is especially generous since residential water heating is one of the highest energy consumers in the American home.
• Furnace or boiler: up to $150 towards the full purchase price and/or $50 for a furnace with an efficient air-circulating fan.

To be eligible for the federal tax credits, the energy efficient products purchased must meet the following requirements:

Natural gas, propane and oil water heaters must meet a minimum water heating Energy Factor (EF), which is about 20 percent more efficient than the current federal standard. Though electric water heaters do not qualify for the tax credit, many energy-efficient tankless water heaters make the cut.
Windows, doors, and insulation must meet the requirements of the amended 2000 International Energy Conservation Code (IECC), which addresses energy efficiency in buildings. ENERGY STAR windows will almost always qualify. ENERGY STAR is a government-backed program helping businesses and individuals protect the environment through superior energy efficiency. Results are already adding up. Americans, with the help of ENERGY STAR, saved enough energy in 2005 alone to avoid greenhouse gas emissions equivalent to those from 23 million cars — all while saving $12 billion on their utility bills.
• Metal roofs must have pigmented coatings that meet ENERGY STAR requirements.
Heating, Ventilating & Air Conditioning (HVAC) must meet stringent efficiency requirements – not even all ENERGY STAR products will qualify. For example, a gas furnace must have a minimum Annual Fuel Utilization Efficiency (AFUE) of 95. Central air conditioners must have a Seasonal Energy Efficiency Ratio (SEER) of at least 15.
The EPACT also provides a credit equal to 30% of qualifying expenditures for purchase of qualified photovoltaic product and for solar water heating systems used exclusively for purposes other than heating swimming pools and hot tubs. The allowable credit shall not exceed $2000.

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