Lower Your Federal Tax and Energy Bill at the Same Time

            The Energy Policy Act of 2005 signed by President Bush on August 8, 2005, provides federal tax credits of up to $500 for Wayne-White Counties Electric Cooperative members who make certain energy efficient upgrades to their homes. Additional benefits of participating in the program will include lower home energy bills, increased indoor comfort and reduced air pollution.

What is a tax credit?

            A tax credit is a claim on your federal income tax form at the end of the year. The credit increases the tax refund you receive or decreases the amount of taxes you have to pay. A tax credit is more valuable than a similar size tax deduction. A tax credit reduces your federal income tax by 100 percent of the amount of credit.

Who is eligible for the tax credits?

            Anyone who installs the eligible improvements in or on the their principle residence in the United States .

What energy-efficient home improvements are eligible?

§         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 conditioners, heat pumps or water heaters: up to $300 towards the full purchase price.

§         Furnaces or boilers: up to $150 towards the full purchase price, and/or $50 for a furnace with an efficient air-circulating fan.

§         Exterior windows (including skylights): 10 percent of the total cost, up to $200.

What are the equipment specifications needed for the tax credit?

§         Windows, doors and insulation must meet the requirements of the International Energy Conservation Code (IECC) a model energy code for buildings. In some cases this may be higher than the Energy Star code.

§         Metal roofs must have pigmented coatings that meet Energy Star requirements.

§         Heating and cooling equipment must meet stringent efficiency standards and not all Energy Star products will qualify. Central air conditioners must have a seasonal energy efficiency ratio (SEER) minimum of 15 and an energy efficiency ratio (EER) minimum of 12.5. Electric heat pumps must be 15 SEER and 13 EER with a heating seasonal performance factor (HSPF) of at least 9. Geothermal heat pumps must meet current Energy Star criteria. For a closed-loop system, a 14.1 EER and a coefficient of performance (COP) of at least 3.3. In addition the geothermal heat pumps must include a desuperheater, which helps heat water or an integrated water heating system. Natural gas, propane or oil burning water heaters must have an energy factor (EF) of at least 0.80. Only some tankless water heaters meet this standard.  As we have discussed before, tankless heaters can be quite effective in point of use applications, however, their use as the central source of hot water in a residence should be carefully considered.  We do not recommend them for such an application.  (See our article in November, 2005 issue of Illinois Country Living Magazine)

When are the tax credits available?

            The home improvement tax credits apply for improvements “placed in service” from January 1, 2006, through December 31, 2007. “Placed in service” means installed,  not just purchased.  Be sure to save your receipts for these purchases.

            For more information, contact Wayne-White at (618) 842-2196 or talk to your tax consultant or accountant.  We will continue to provide more details about these new tax incentives as they become available.