You may have heard about the passage of the recent U.S Energy Policy Act of 2005 (EPAct 2005) and are probably wondering what impact it could have on you. The act includes tax incentives for residential customers aimed at promoting energy-efficiency in new homes and encouraging energy-efficiency improvements to existing homes.

Please note: (a) most of the provisions require that Internal Revenue Service regulations be written and adopted; (b) in general, the act requires that eligible investments be placed in service between January 1, 2006, and December 31, 2007; and (c) additional provisions relating to renewable energy, fuel cells, and manufacturers of energy-efficient appliances are not described below.

Existing Homes

• Tax credits are available to homeowners for 10 percent of improvement costs, up to $500 total, for:
  • Insulation, windows, skylights, and other building envelope improvements.
  • Central air conditioners, heat pumps, ground-source heat pumps, furnaces, boilers, water heaters, and heat pump water heaters.
• Eligible improvements are subject to a variety of efficiency requirements, including the IECC and Energy Star criteria. Details of some criteria will be determined by the relevant federal agencies.
• Credits for specific items or categories are capped—for example, $50 for an “advanced main-air circulating fan”; $150 for a gas, propane, or oil furnace or hot water heater; $200 for windows; and $300 for central air conditioners and water heaters. (This is a partial list.)
• The tax credits may be calculated on the total cost, including labor for installation.
• There is a lifetime limit of $500 per taxpayer in total credits.

The information contained in this article is for general purposes only and does not constitute tax advice or the views of Progress Energy.  Progress Energy assumes no responsibility with respect to assessing and/or advising the reader as to the individual tax consequences for the reader’s particular situation.