Energy Tax Credit Guide

It is that time of year when people read about energy tax credits, and begin to ponder whether or not a purchase they have recently made qualifies them. These credits are a great way to reward people for keeping their energy bills low, and more importantly, for helping to reduce their environmental impact.

An energy tax credit works by directly reducing the amount of tax paid on a qualified purchase, not as a standard IRS tax deduction. There are four areas which need to be considered before considering whether or not someone qualifies for the tax credit. Those areas are:

1. Solar energy systems
2. Fuel cells
3. Home improvements
4. Efficient cars

All these areas are considered qualified if the system was placed into service from January 1, 2006 through December 31, 2008. Solar energy systems are solar heating and electric systems that are installed in a home or business. The tax credit is 30 percent of the cost of the system, with a cap of $2,000. This credit is not limited to the $500 home improvement cap.

Fuel cell purchases would cover micro turbine systems and fuel cells. The tax credit is 30 percent of the cost of the system with a maximum of $500 per 0.5 kW of capacity.

Home improvement tax credits are pretty tricky, but pretty much cover adding replacement windows, certain high efficiency heating and cooling equipment, and insulation. It is best to check with the IRS about these specific guidelines in IRS Notice 2006-26. It is important to note that the maximum credit for home improvement is $500 for all improvements combined.

Energy efficient vehicles cover hybrid gasoline-electric, diesel, battery-electric, alternative fuel, and fuel cell vehicles. The energy tax credits are calculated in different ways depending on a number of factors so check out the summary of the credit for qualified hybrid vehicles on the IRS website

Whatever the purchase that you are making, be sure to read up and know the amount that you can expect as a tax credit. A helpful site to help you explore into energy tax credits in your area is DSIRE.