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Enviromental tax breaks can save green for consumers

The Associated Press

Going green can pay off in more ways than one.

Under federal legislation that went into effect Jan. 1, consumers who invest this year in energy-efficient products ' from insulated windows to heat pumps and hybrid cars ' will be able to save on their taxes next year.

The new tax breaks, included in the Energy Policy Act of 2005, are aimed at encouraging Americans to choose products and vehicles that not only reduce their energy costs but also are kinder to the environment.

While there are easy, immediate steps that families can take to reduce their energy bills, like turning down the thermostat or weather stripping doors and windows, these tax credits will help with the purchase of bigger ticket items, said U.S. Energy Secretary Samuel W. Bodman. reducing overall energy demand one family or business at a time, we are also increasing America's energy security.

The nonprofit Alliance to Save Energy has details for consumers on its Web site at . A coalition has posted details for businesses and consumers at .

— Bob D. Scharin, who edits the Practical Tax Strategies newsletter for tax information publisher RIA, said one set of the new tax credits relates to energysaving home improvements. Tax credits reduce consumers' tax bills dollar for dollar.

Consumers are eligible for a tax credit of 10 percent of the cost for building improvements including insulation, certain kinds of roofing, windows and skylights and doors, Scharin said. The maximum credit is &

36;500, but only &

36;200 can come from the windows, he said.

There are specific credit limits on some equipment:


36;300 for some central air conditioning units and heat pumps as well as high-efficiency water heaters.


36;150 for high-efficiency furnaces and boilers.


36;50 for air-circulating fans for heating and cooling systems.

There are even larger credits for major home improvement projects, Scharin said. For example, homeowners can qualify for a tax credit for 30 percent of the cost of equity that uses solar energy to generate electricity, up to a &

36;2,000 maximum credit. A similar credit applies to solar water heating equipment, though consumers should be forewarned that these can't be used for swimming pools and hot tubs.

The credits are probably a small portion of what people will be spending on these systems, but every bit helps, Scharin said.

There also will be tax credits of up to &

36;3,400 for the purchase of fuel-efficient vehicles, including hybrid autos, pickups and SUVs. The amount of the credit will depend on the vehicle's fuel economy compared to a conventional vehicle of similar weight.

The IRS already has issued guidelines that manufacturers can use to certify the amount of credit a purchaser of a hybrid or lean-burn diesel vehicles can claim, and manufacturers are expected to be releasing estimates of credits shortly.

Scharin noted that the credits will begin to phase out after an automaker has sold 60,000 qualifying vehicles, so it may pay consumers to buy sooner rather than later this year.

Mark Steber, vice president for tax resources with the Jackson Hewitt Tax Service Inc., headquartered in Parsippany, N.J., said that when it comes to qualifying for the home improvement credits, the beauty is, you don't have to do a lot to get the &


Homeowners will have to be able to prove to the IRS that they made the qualifying purchases, so saving receipts will be critical come April 2007, when you claim those credits.

He added: A lot of people are thinking of making energy improvements anyway. This should give them more incentive.