New Tax Breaks for Energy Efficient Home Improvements


Article by: John Pollock

If you would like to make your existing home , What to Look for in a Telescoping Flagpole more energy , Replacement Windows Information efficient and get some help paying for the improvements, , Home Building Plans you need to know about the Energy , Need More Room in Your Closet? Try a Custom Closet Organizer Tax Incentives Act of 2005. The new law provides a $500 lifetime credit against your federal income tax for the cost of certain energy-saving home , Selling Houses: Payback of Window Treatments improvements that you make to your home , How To Break Up a Large Family Room after December 31, 2005 and before January 1, 2008. Up to $200 of the tax credit may be applied to windows. , Benefits of the Little Giant Ladder System

As you may know, a tax credit is far more favorable than a deduction of the same amount. Deductions only reduce the amount of income that is subject to tax. A tax credit, on the other hand, is a dollar for dollar reduction of the tax due when you file your income tax return. So, if you are in the 28% income tax bracket, the new $500 credit is equivalent to a tax deduction of nearly $1800!

Here are highlights of the new provisions:

There is an overall lifetime cap on the credit of $500, and a maximum of $200 of the credit may be applied to qualified window , Are Online Satellite Dish Promotions for Real? expenditures. Subject to those limitations, you may receive a credit for the sum of the following:

Building Envelope Components. Ten (10%) percent of your expenditures for so called "building envelope components" will qualify for the tax credit. Building , Used Appliance Parts envelope components include the following:

  • any insulation material or system which is specifically and primarily designed to reduce the heat , Cutting Down Costs: Air Conditioners loss or gain of a dwelling unit when installed in or on such dwelling unit,
  • exterior windows , Searching for the Perfect Memory Foam, Throw or Decorative Pillows (including skylights),
  • exterior doors, , Carpet Cleaning: 12 Things To Know and
  • any metal roof , How To Open Your Swimming Pool This Spring installed on a dwelling unit, but only if such roof , 5 Questions To Ask Before Starting Any Home Improvement Project has appropriate pigmented coatings which are specifically and primarily designed to reduce the heat , 5 Steps for Creating a Garage You Can Love – and Use gain of such dwelling unit.

To qualify for the credit, the building , Keep Your China Cabinet in Beautiful Condition envelope components must be installed in or on a dwelling unit (including a manufactured home) located in the United States that is owned by you and used by you as your principal residence. Installation of envelope components in a second or vacation home , Tarps Buying the Easy Way or rental property , Electrical Safety and Power Tools therefore will not qualify for the new tax break.

Only new components are eligible for the credit and the components must reasonably be expected to remain in use for at least 5 years.

Energy efficient property , Planning Permission UK - Tactics if Appealing to the DOE for a Planning Refusal expenditures. Amounts paid for "residential energy property , Home Air Purifiers: Healthy Home Solution expenditures" will also qualify for the credit up to the following specific limits:

  • Up to $50 for any advanced main air , Make Your Kitchen Sparkle With A Glass Washing Brush circulating fan;
  • Up to $150 for any qualified natural , Home Energy Savings Tips: Compact Fluorescent Lamps gas, propane or oil furnace or hot water , Z Mesh, An Innovative Floor Heating System boiler;
  • Up to $300 for any item of "energy-efficient building property. , Tarps Buying the Easy Way " This includes certain qualifying electrical heat water , Planning Permission Tips UK - Trees and How They Can Affect Development when Applying for Planning pumps, electric heat , Z Mesh, An Innovative Floor ing System pumps, geothermal heat , Hot Tub Cover and Spa Cover Buying Guide pumps, central air , 10 reasons to buy silk flowers and plants over real ones conditioners and natural , How To Break Up a Large Family Room gas, propane or oil water , House Painting Book heaters.

Expenditures for labor , Benefits of the Little Giant Ladder System costs for onsite preparation, assembly or original installation may be included. Improvements , 5 Steps for Creating a Garage You Can Love – and Use must be installed in or in connection with a dwelling unit located in the United States that is owned by you and used by you as your principal residence.

There are energy , Make Your Kitchen Sparkle With A Glass Washing Brush efficiency standards described in the new law that your home , The Truth About Roofs improvements must meet, so some investigation on your part will be necessary to be sure that the improvements , 10 Steps to Help Refrigerators Live Longer will qualify for the credit. For this reason, if you hire a third party to do the work, your written agreement with the contractor , Working With Building Inspectors should include the contractor's guaranty that the installed property , What to Look for in a Telescoping Flagpole will meet the energy , What to Look for in a Telescoping Flagpole efficiency standards of the new law.

There is one potential trade-off, if you use the credit. Many improvements , Cutting Down Costs: Air Conditioners to your home , Carpet Cleaning: 12 Things To Know will increase your "tax basis" in the property, , Kitchen Bar Stools - They're Not Just For Breakfast Anymore! and this increased tax basis may, in turn, reduce the amount of capital gain that is realized if you sell your home , House Painting Book at a profit. The increase in tax basis that would otherwise result from energy , 5 Questions to ask Yourself Before Deciding to be an Owner/Builder efficient improvements , Planning Permission Tips UK - Off Road Car Parking - What Value - Do You Need to Apply for Planning that qualify for the credit will be reduced by the amount of the allowed credit. Since the tax credit decreases your tax basis, you are likely to have more capital gain at the time of sale. This will not affect you if all of the capital gain realized at the time of sale is protected by the $250,000 exclusion ($500,000 for married couples) for gains realized on the sale of your principal residence. But even if there is an increase in the taxable capital gain realized when you sell your home, , How To Choose The Right Faucet it will almost certainly be outweighed by the advantage of using the new income tax credit currently.

Like so much of the Internal Revenue Code, the new provisions encouraging energy , Planning Permission Tips UK - Trees and How They Can Affect Development when Applying for Planning efficient home , The Science of Architecture improvements seem unnecessarily complicated, but we have to consider the source - Congress! However, a bit of patience and careful planning will bring you some very real tax savings and help the environment , Solar Home Improvements and Tax Deductions to boot!
John Pollock is an attorney practising in Detroit, Michigan and the webmaster of

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