Tax Help For Sunny Homes

Thinking of sprucing up the old homestead to make it a little more energy-efficient and maybe save yourself some money on utility bills?

Um, you may want to wait a few months. The good news is, Congress wants to give you a helping hand in paying for some of those upgrades; the bad news is, the help isn't coming right away, and it isn't all that much.

The huge energy bill that lawmakers managed to disgorge last month before going home for their August break includes about $14.5 billion in energy "incentives," and while the bulk of this goes to businesses, it includes some benefits for homeowners and car buyers as well. The new benefits are mostly tax credits, rather than deductions, meaning they reduce your tax bill dollar for dollar, and thus have the same value for all taxpayers.

However, the bill, which President Bush is expected to sign tomorrow, specifies that many of the tax breaks it provides are available only for items purchased or placed in service after Jan. 1, 2006.

Maybe that isn't such a bad idea, though. At least it will give suppliers and builders time to figure out exactly what qualifies, and possibly what the best combination of benefits might be.

For homeowners there are two key provisions to look into.

The first allows a 10 percent tax credit for improvements to the energy efficiency of existing homes, up to a lifetime maximum per taxpayer of $500. The credit applies to property placed in service in 2006 and 2007 only.

The second offers a 30 percent credit for the purchase of certain kinds of solar-powered water-heating systems, photovoltaic equipment (which converts sunlight to electricity) and fuel-cell systems. The maximum credit is $2,000 for solar systems and $500 per kilowatt of fuel cell capacity. This one likewise applies only for items placed in service in 2006 and 2007.

There are also some business provisions -- for energy-efficient houses and appliances -- that may help homeowners, though that will be contingent on the businesses passing along some of the savings to consumers.

Finally, there is a new batch of credits for energy-efficient vehicles. Some are new, some replace deductions allowed by current law, and they have lots of different expiration dates.

Homeowners will likely find the 10 percent credit the most appealing. It applies to improvements to a building's "envelope," so such things as insulation improvements, metal roofs coated with heat-reducing pigments, and energy-efficient windows, doors and skylights are eligible. The maximum credit is $500, meaning a homeowner would have to do $5,000 worth of work to get the full amount, but only $200 of the credit can come from expenses for windows.

This same 10 percent credit also applies to a list of specific items, each with its own maximum. Some of these are a bit on the esoteric side, and you may need to consult both your plumber and your accountant to figure out whether they are useful.