Jackson Hewitt Tax Service
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If you own a home and are considering energy efficient home improvements, there are several new credits available as of January 1, 2006. These credits extend to owners of manufactured housing, co-ops and condominiums. They all reduce your federal income tax due, but are not refundable once your tax liability reaches zero. However, in most cases, the unused portion can be carried over into the next tax year.
Individuals will be allowed a personal credit of 10% of the amount spent, up to a $500 lifetime limit, for insulation and for exterior doors and windows, including skylights. Certain metal roofs with appropriate pigmented coatings are included. New energy-efficient main circulating fans, furnaces, hot water boilers, heat pumps, water heaters, and central air conditioners will also qualify for this credit.
To qualify for the credit, the new energy-efficient items must meet the 2000 International Conservation Code. If you replace the roof on your house with a qualified new roof after December 31, 2005, and before January 1, 2008, and spend $3,000, you will receive a $300 credit on your income taxes. Qualified new windows are limited to a $200 maximum credit. Waiting until January 2006 to spend $5,000 to replace your windows will result in a $200 credit on your 2006 tax return.
Another set of new credits for homeowners is grouped under the title, “Credit for Residential Energy Efficient Property.” These credits include 30% of qualified fuel cell property up to $500 for each half kilowatt of capacity, 30% of photovoltaic property (solar cells) up to $2,000, and 30% of qualified solar water heating expenditures up to $2,000. Solar water heating systems for swimming pools, spas and hot tubs will not qualify.
A taxpayer that installs a solar water heating system for their home and spends $6,000 may qualify for a credit of up to $1,800.
These credits will only be available for items installed in the taxpayer’s home beginning January 1, 2006, and must be installed before January 1, 2008. To be sure that the product you are considering is a qualifying product, and to find out just how much credit you would realize, consult with your local Jackson Hewitt Tax Service® before you buy.
NEW CREDIT FOR: Home energy efficiency improvements
PLACED IN SERVICE: 2006 and 2007
MAXIMUM: $500 lifetime
NEW CREDIT FOR: Residential solar water heating system, solar panels, and fuel cell power plants
PLACED IN SERVICE: 2006 and 2007
MAXIMUM: Heating system, $2,000; solar panels, $2,000; fuel cell power plants, $500 per each .5 kilowatt of capacity
RESIDENTIAL ENERGY PROPERTY CREDIT
• Limited to $500 for all tax years and is equal to the sum of:
10% of qualified energy efficiency improvements, and
Costs relating to residential energy property expenses
• Further limits on certain energy efficiency improvements, such as windows and hot water heaters
• Available on property or improvements placed in service after December 31, 2005 and before January 1, 2008
ADDITIONAL REQUIREMENTS FOR BUILDING COMPONENTS:
• Dwelling must be the taxpayer’s principal residence within the U.S.
• The original use of the component begins with the taxpayer
• The component has a reasonable life expectancy of at least five years
THE ALLOWED AMOUNT IS LIMITED TO A LIFETIME TOTAL OF $500. THE INDIVIDUAL COMPONENTS HAVE FURTHER LIMITATIONS. THE COMPONENTS OF THE CREDIT ARE:
• Home improvements, such as windows, doors, insulation, and certain metal roofs—10% of the cost; not more than $200 for windows
• “Energy-efficient building property” including electric and geothermal heat pumps and central air conditioners, insulation—$300 for each
• Natural gas, propane, or oil furnace or hot water boilers—$150 for each
• Advanced main air circulating fans— $50 for each
Taxpayers may rely on manufacturer certification at the time of purchase, and should keep a copy of the certification in their records.
Lifetime maximum total residential energy credit of $500 available for tax years 2006 and 2007.
New "Uniform Definition of a Child" rules
In an effort to create uniformity in the tax code, 5 major tax credits or deductions involving children have been realigned. The new rules identifying a "child" are now consistent for :
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Child Tax Credit
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Dependency
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Earned Income Credit
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Child and Dependant Care Credit
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Head of Household filing status
These changes will be of no consequence to some taxpayers, and make significant changes for others. We encourage you to come into our offices and see how these changes may affect you!
Effective January 1st, 2006, standard mileage rate for business use of a personal vehicle was set at 44.5 cents per mile.
Moving mileage rate for 2006 is 18 cents per mile.
Medical mileage rate for 2006 is 18 cents per mile.
Charitable mileage for 2006 is
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14 cents per mile (General)
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32 cents per mile (Hurricane Katrina deduction)
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44.5 cents per mile (Hurricane Katrina reimbursement)