End is near for home energy improvement tax break
One of the few silver linings to the rising cost of energy is that Uncle Sam has greater sympathy for you and will kick back some money if you purchase certain energy-saving products.
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The Energy Tax Incentives Act of 2005 kicked in Jan. 1, 2006, and includes incentives to make your home more energy efficient and to give solar a try. They come in the form of tax credits, reducing federal tax bills dollar for dollar. Unlike many federal programs, they are not phased out for higher incomes.
The most generous credits are available for those who add solar water, heat or power to their homes. This tax break runs through 2008.
But some smaller tax credits for easier to implement improvements will disappear Jan. 1, 2008. True, the payoff is not as great, but even at this late date, you still might be able to boost your home’s energy efficiency and shave a few dollars off your 2007 tax bill.
This section of the energy bill provides a 10 percent tax credit for improving the energy efficiency of conventional technology in your home. Eligible improvements include such relatively simple things as replacing windows and doors, adding insulation, installing a high-efficiency air conditioner or, more appropriate for this time of year, a furnace.
The lifetime maximum credit for these improvements is $500, and if you claimed any credits in this area on your 2006 return, they count toward that maximum. But if you didn’t make any energy efficient improvements in 2006 or still have some credit amount available, you’ve got until Dec. 31 to get the upgrades done to your home.
Solar conversion can really pay off
The bigger tax credits, however, will come if you decide to convert some of your home’s systems to solar power.
It wasn’t very long ago that installing virtually any kind of solar device was a labor of love without much economic value. But with the federal incentives — combined in many places with utility and state incentives — solar is looking like a much better deal.
The provisions of this law originally allowed taxpayers to claim a tax credit each year in 2006 and 2007, but Congress extended them through 2008 for several expenses.
Allowable expenses:
•30 percent of the cost of solar water-heating equipment, up to a $2,000 maximum tax credit for each tax year.•30 percent of the cost of solar equipment that generates photovoltaic electricity, up to a $2,000 maximum tax credit for each tax year.•30 percent of the cost of a fuel-cell power plant, up to a $500 maximum tax credit for installation in a taxpayer’s principal residence. This new technology converts fuel into electricity using electromechanical methods and meets other detailed requirements. But don’t get too excited about this one. This technology isn’t yet available for practical use to residential consumers. But if you are interested in being on the cutting edge, check out Plug Power and Ballard Power Systems. These companies, according to their representatives, are within a few years of offering systems that are available for residential use.
The best solar deal
Solar equipment — particularly solar water heaters — is a lot more reasonably priced, easier to install and generally more practical than it’s ever been.
While installing photovoltaic systems can be pricey with payback in the distant future, installing a solar water-heating system can pay for itself quickly and, as energy prices rise, continue to save a homeowner increasing amounts of money.
“I think that even without the tax credit, solar water-heating systems are economical. You’d almost be crazy not to get a solar water heater right now — especially with natural gas prices going up,” says Noah Kaye, policy and communications coordinator for the Solar Energy Industries Association.
Solar water-heating systems rely on relatively simple and cheap technology to circulate water through panels that face the sun, supplementing, and in some cases replacing, conventional water-heating systems.
The most common type of solar thermal system involves copper pipes that wind back and forth through a flat plate collector, typically mounted on a roof. The heated water is collected in an auxiliary water tank, or it can be routed straight into the main water tank, where it is either heated further by conventional means or is ready for use at the spigot or in a radiant, or radiator heating system.
Kaye estimates that a reliable system installed by a professional can cost as little as $3,500, with systems climbing to as much as $6,000 in cold climates where freezing is an issue. Once it’s installed, the ongoing costs are near zero with only very occasional maintenance needed.