Tax Incentives For Residential Energy Efficiency Improvements

The Energy Policy Act of 2005 includes provisions for energy efficiency tax incentives for existing homes. The average American home loses between 10 and 50 percent of its energy through inadequate insulation and inefficient lights and appliances. The energy bill offers consumers tax credits for making energy efficiency improvements in their homes. The incentives for residential energy efficiency include:

  • Ten percent cost-based credit to homeowners for qualified energy improvements installed during the taxable year to a limit of $500:
    • $200 for windows
    • $50 for advanced main air circulating fan
    • $150 for furnace or hot water boiler
    • $300 for any energy-efficient building property, including qualifying electric heat pump water heaters; electric heat pumps; geothermal heat pumps; central air conditioners; and natural base, propane, or oil water heaters.
  • Qualified improvements are defined as improvements to the building envelope that meet the efficiency criteria in prescriptive chapter of the International Energy Conservation Code (or a metal roof which meets ENERGY STAR requirements).
  • A thirty percent credit not to exceed $2,000 for qualifying residential solar photovoltaic property and a thirty percent credit not to exceed $2,000 for solar water heating property (not for swimming pools or hot tubs) placed into service in 2006 and 2007.
  • Labor costs for the onsite preparation, assembly, or original installation of the property may be included as a qualifying expenditure.
  • Energy efficiency components shall remain in use for at least five years.
  • The tax credit goes into effect on January 1, 2006 and expires on December 31, 2007.

The legislation is posted on the Senate Energy Committee's web site at:
(Note: The existing home credit provisions begin on page 1351.)

State of Illinois 2006. All rights reserved. Produced by Building Media Inc.