Tax Tips

Residential energy property credit

A tax credit of up to $500 is available to individuals for nonbusiness energy property, such as residential exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters. The credit is equal to (1) the residential energy property expenditures plus (2) 10 percent of the cost of qualified energy efficiency improvements installed during the year at the taxpayer's principal residence in the United States. The residential energy property credit is limited to a maximum of $500 for all tax years and no more than $200 of the credit can be based on expenditures for windows. The residential energy property credit applies to qualified energy efficiency improvements and qualified energy property placed in service in 2006 and 2007.

Eligible improvements include:

l insulation materials;
l exterior windows, including skylights;
l exterior doors;
l metal roofs with special pigmented coatings;
l electric heat pump water heaters;
l electric and geothermal heat pumps;
l central air conditioners;
l natural gas, propane, or oil water heaters or furnaces;
l hot water boilers; and
l advanced main air circulating fans.

Credit limits. The residential energy property credit is a $500 lifetime credit. The credit is equal to 10 percent of the cost of qualified energy efficiency improvements (windows, doors, insulation) plus the cost of qualified energy property (heat pumps, water heaters, furnaces, central air units) up to the $500 lifetime maximum, subject to the following specific credit amount limits:

(1) $200 for window components,
(2) $50 for an advanced main air circulating fan
(3) $150 for any qualified natural gas, propane, or oil furnace or hot water boiler, and
(4) $300 for any item of energy-efficient building property