Projo Biz Blog

Homeowners have only three weeks left to take advantage of a host of federal tax credits for making certain energy-efficient improvements.

The tax credits, which cover major purchases, such as furnaces and boilers, and smaller improvements, such as storm doors and insulation, will expire at the end of this month.

The provisions are part of the Energy Policy Act of 2005. Though there is a chance these tax credits could be extended, that possibilty is growing dimmer. Yesterday, the House of Representatives passed the Energy Independence and Security Act of 2007, a major energy bill that includes an extension of the homeowner energy-efficiency tax credits through 2008.

But this afternoon, Senate Republicans blocked the bill from reaching the Senate floor for a vote. Some senators opposed the bill's more far-reaching measures, such as raising taxes for the five largest oil companies by $13 billion, said Steven Nadel, executive director of the American Council for an Energy Efficient Economy.

Even if the bill made it through Congress, President Bush has threatened to veto it. The bill passed by the House was “unacceptable to the president and had no chance of being signed into law,” the White House said yesterday in a statement.

With that uncertainty, the only sure way to take advantage of the tax credits is to make the improvements by Dec. 31.

Here’s what’s at stake: people who make specific energy-efficient home improvements to their primary residence can get a one-time income tax credit of up to $500, according to the Alliance to Save Energy.

Tax credits reduce a person’s actual taxes, dollar for dollar, when filing federal income-tax returns. (By contrast, a tax deduction is less valuable because it only reduces only the amount of income that is taxable.)

The $500 cap can be reached by a combination of improvements, according to the Alliance to Save Energy:

• 10 percent of the total cost, up to $200, of exterior windows, including skylights and storm windows.
• 10 percent of the cost of the product, up to $500, not including installation, of insulation and exterior doors. It covers seals to limit air infiltration, such as caulk, weather stripping, foam and storm doors.
• Up to $300 towards the full purchase price, including installation, of certain central air conditioners, heat pumps or water heaters.
• Up to $150 toward the full purchase price of a furnace or boiler, including installation.

Not all energy-efficient heating and cooling equipment qualify for the tax credits, including some that carry the Energy Star sticker. They have to meet certain stringent efficiency requirements. For example, natural gas, propane or oil furnaces and boilers must have at least a 95-percent annual fuel-utilization efficiency (AFUE) to qualify for the $150 credit.

All Energy Star windows do qualify, according to the Alliance.

The IRS says the credits are available if the improvements are “placed in service” before the expiration of the tax-credit provisions, the alliance said. That generally means that they have to be installed by that deadline, not just purchased.

For more information about the credits, and which products apply, see the Alliance to Save Energy Web site at http://www.ase.org/content/article/detail/2654 or the IRS Web site at http://www.irs.gov/newsroom/article/0,,id=153397,00.html

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