What are they and how do they work?
April is just around the corner, and with it come all the joys of springtime: April showers, longer days, buds on the trees and, ugh, filing your taxes.
If you've made any energy efficiency improvements to your home over the past year, you may be eligible for tax credits under the Energy Policy Act of 2005. You can think of Tax Day, April 15 at the latest, as a pre-party for Earth Day (April 22).
What's the difference between a tax credit and a tax deduction?
A tax deduction reduces your taxable income while a tax credit reduces the amount of tax you owe dollar for dollar.
If you get a $1000 tax
and you are in the 20 percent income tax bracket, that deduction reduces the taxes you owe by $200.
If you get a $1000 tax
it reduces the amount of taxes you owe by $1000.
What tax credits are available for energy efficiency improvements to my property?
Tax credits are available for the following improvements placed in service before January 1, 2008. The credits are for 10 percent of the cost of improvements and can be combined to earn up to $500 total credit per homeowner.
These credits were available for home improvements placed in service from January 1, 2006 through December 31, 2007. If you made any qualified home improvements in 2006, but did not claim them on your 2006 taxes, you will need to file an amended return. The home in question must be your primary residence.
Tax credits for solar electricity, solar hot water heating, and fuel cells have been extended and apply to any improvements placed in service from January 1, 2006 through December 2008. The $500 cap noted above does not apply to these credits.
How do I collect my tax credits?
That's as easy as 1, 2, 3.
Collect all receipts (if misplaced, contact retailer, they may be able to provide one) and acquire Manufacturer's Certification Statements for products purchased. A Manufacturer's Certification is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. Many are available on manufacturer Web sites. You need this statement for your records, but are not required to submit it with your tax return.
Download and fill out IRS Form 5695. This two page form is straightforward and will be a breeze if you've saved receipts. Put the calculated total into Line 52 of your
Send in your forms and relax. Think of the money you saved and enjoy your more comfortable home.
Does my state offer similar tax incentives?
Want to find out about energy efficiency and renewable energy incentives on the state level. Check out the PATH
State Resources Map
Content updated on 2/29/2008