federal tax credits for energy efficiency -
tax credits for consumers

A tax credit can provide significant savings. It reduces the amount of income tax you have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a tax credit directly reduces the tax itself. The final rules and forms to clarify which products and services qualify for the tax credits will be developed by The Internal Revenue Service (IRS). You must refer to the final IRS rules to determine what qualifies for the tax credit. We will link to this information as soon as it is available.

Please note, not all ENERGY STAR qualified homes and products qualify for a tax credit. These tax credits are available for a number of products at the highest efficiency levels, which typically cost much more than standard products. If, for whatever reason, you decide not to purchase a product covered by the tax credit, you may still consider purchasing an ENERGY STAR product. ENERGY STAR distinguishes energy efficient products which, although they may cost more to purchase than standard models, will pay you back in lower energy bills within a reasonable amount of time, without a tax credit.

home improvements

Tax credits are available for many types of home improvements including adding insulation, replacement windows, and certain high efficiency heating and cooling equipment. See chart. The maximum amount of homeowner credit for all improvements combined is $500 during the two year period of the tax credit. This tax credit applies to improvements made from January 1, 2006 through December 31, 2007.

efficient cars

Tax credits are available to buyers of hybrid gasoline-electric, diesel, battery-electric, alternative fuel, and fuel cell vehicles. The tax credit amount is based on a formula determined by vehicle weight, technology, and fuel economy compared to base year models. These credits are available for vehicles placed in service starting January 1, 2006. For hybrid and diesel vehicles made by each manufacturer, the credit will be phased out over 15 months starting after that manufacturer has sold 60,000 eligible vehicles. For vehicles made by manufacturers that have not reached the end of the phase-out, the credits will end for vehicles placed in service after December 31, 2010.

solar energy systems

Tax credits are available for qualified solar water heating and photovoltaic systems. The credits are available for systems "placed in service" in 2006 and 2007. The tax credit is for 30 percent of the cost of the system, up to $2,000. This credit is not limited to the $500 home improvement cap.

fuel cells

There is a consumer tax credit of up to 30% of the cost (up to $500 per 0.5 kW of capacity maximum) for installing a "qualified" fuel cell and microturbine systems. The credits are available for systems "placed in service" in 2006 and 2007. This credit is not limited to the $500 home improvement cap.

For more information, please visit Energy Star.

ENERGY POLICY ACT OF 2005 DRAFT SUMMARY OF TAX CREDITS FOR HOMEOWNERS1 (US Treasury has not yet provided final interpretation for IRS use)
Product Category	Product Type	Tax Credit Specification	Tax Credit	Notes
Windows	Exterior Windows	Meets 2000 IECC & Amendments	10% of cost, up to $200*	ENERGY STAR windows will almost always qualify, except for certain parts of California**.
	Skylights	Meets 2000 IECC & Amendments	10% of cost, up to $200*	ENERGY STAR skylights will almost always qualify, except for certain parts of California**.
	Exterior Doors	Meets 2000 IECC & Amendments	10% of cost, up to $500*	ENERGY STAR doors will almost always qualify, except for certain parts of California**.
Roofing	Metal Roofs	ENERGY STAR qualified	10% of cost, up to $500*	All ENERGY STAR labeled metal roofs qualify for the tax credit.
Insulation	Insulation	Meets 2000 IECC & Amendments	10% of cost, up to $500*
HVAC	Central A/C	EER 12.5/SEER 15 Split Systems EER 12/SEER 14 Package systems	$300*	Note - not all ENERGY STAR products will qualify for the tax credit. The ENERGY STAR specification is: EER 11.5/ SEER 14 Split systems EER 11/SEER 14 Package systems
	Air Source Heat Pumps	HSPF 9 EER 13 SEER 15	$300*	Note - not all ENERGY STAR products will qualify for the tax credit. The ENERGY STAR specification is: HSPF 8.2 EER 11.5 SEER 14 Split systems HSPF 8 EER 11 SEER 14 Package systems
	Geo-Thermal Heat Pump	Same criteria as ENERGY STAR: EER 14.1 COP 3.3 Closed Loop EER 16.2 COP 3.6 Open Loop EER 15 COP 3.5 Direct Expansion	$300*	All ENERGY STAR labeled geo-thermal heat pumps qualify for the tax credit.
	Gas, Oil, Propane Water Heater	Energy Factor 0.80	$300*	Only some tankless water heaters currently qualify. This is about 20 percent more efficient than the current federal standard.
	Electric Heat Pump Water Heater	Energy Factor 2.0	$300*	This is more than twice as efficient as the current federal standard.
	Gas, Oil, Propane Furnace or Hot Water Boiler	AFUE 95 for both furnaces and boilers	$150*	Note - not all ENERGY STAR products will qualify for the tax credit. The ENERGY STAR specification is: AFUE 90 for furnaces AFUE 85 for boilers
	Advanced Main Air Circulating Fan	No more than 2% of furnace total energy use	$50*
Cars	Cars	Hybrid gasoline-electric, diesel, battery-electric, alternative fuel, and fuel cell vehicles	Based on a formula determined by vehicle weight, technology, and fuel economy compared to base year models	Guidance for auto manufacturers is available from IRS. There is a 60,000 vehicle limit per manufacturer before a phase-out period begins. Consumers who buy from companies that already sell large numbers of qualifying vehicles will experience a relatively short "window of opportunity" for the credits.
Solar Energy Systems	Solar Water Heating	The system must use solar power to provide at least half of a home's hot water. The credit is not available for expenses for swimming pools or hot tubs. The water must be used in the dwelling and the system must be certified by the Solar Rating and Certification Corporation (SRCC).	30% of cost, up to $2,000
	Photovoltaic Systems	Photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirement.	30% of cost, up to $2,000
Fuel Cells	Fuel Cells	Efficiency of at least 30% and must have a capacity of at least 0.5 kW.	30% of the cost, up to $1000 per kW of power that can be produced
*Subject to a $500 maximum per homeowner for all improvements combined. **The California counties where ENERGY STAR qualified windows, doors, and skylights may not qualify are: Alpine, Lassen, Modoc, Mono and Plumas.