Now is the time to improve the energy features of your house. During 2006 and 2007, you can
recoup your investment by lowering your energy bills and by saving up to $500 on your
tax bills.
Replacing your older air conditioner, heat pump or water heater could save $300 from your tax bill;
Replacing windows could save you a maximum of $200; and
Installing insulation may allow you to take a credit for 10% of the material costs.
The Table below shows the required efficiency for equipment.
Equipment
Minimum Rating
Tax Credit
Central Air Conditioner
15 SEER
$300
Heat Pump
HSPF 9 SEER 15
$300
Furnace or Boiler
AFUE 95
$150
Water Heater
80% efficiency
$300
Main Circ. Fan
Max 2% of furnace energy use
$50
All purchases must be made during 2006 or 2007;
For IRS purposes, the costs are considered paid when the original installation of the item is completed;
The tax credit can be claimed on your taxes only at the end of the year;
You must keep your dated receipts for all eligible purchases; and
The energy efficiency improvements must be for your primary residence.
There is an important difference between a tax deduction and a tax credit. A tax deduction is
subtracted from income before total tax liability is computed. On the other hand, a tax credit is
subtracted directly from the total tax liability. This means that a deduction and a credit have very different values,
with a credit being three or more times more advantageous to the taxpayer than a deduction. For example, a tax
credit of $500 for someone in the 28% tax bracket is equivalent to a tax deduction of $1,785.
