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IRS ISSUES STANDARDS FOR CREDIT FOR HOME ENERGY IMPROVEMENTS

February 23, 2006

Congress in 2005 passed a batch of new energy credits to implement last year's already-forgotten energy policy. The new law allows taxpayers to claim up to $500 of tax credits for energy-saving home improvements.

Notice 2006-26 issued by the IRS yesterday tells you how to know whether your improvements qualify. The notice tells manufacturs what they need to do to certify materials as credit-eligible; taxpayers can then rely on the manufacturer's certification to claim the credit.

Items mentioned in the notice that may qualify for the credit include:

Eligible Building Envelope Components

-Insulation systems
-Windows, skylights, doors;
-Storm windows and doors
-Metal roofing materials with "Has appropriate pigmented coatings that are specifically and primarily designed to reduce the heat gain of a dwelling unit when installed on the dwelling unit (I think that's a fancy way of saying "paint.")

QUALIFIED RESIDENTIAL ENERGY PROPERTY

-Heat pumps,
-Air conditioners
-Water heaters
-Furnaces
-Fans

The notice has details on the standards the items have to achieve to qualify.

AMT PROBLEM?

These credits do not reduce alternative minimum tax under current law. A proposal to change that rule has passed the Senate but must be reconciled with a House bill that lacks the provision.

OTHER ENERGY ACT GUIDANCE

Notice 2006-26 is one of five pieces of energy act guidance issued yesterday. The others:

Notice 2006-24 (The "coal project program")
Notice 2006-25 ("Gasification")
Notice 2006-27 (Builder credit for building energy-efficient homes)
Notice 2006-28 (Builder credit for energy-efficient manufactured homes)

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