Where energy saving pays off in tax savings
Are you one of many Americans who thought about making your home or apartment more energy efficient, only to hesitate because of the cost? Relax, the federal government wants to help you.
Through the Energy Tax Act of 1978, home and condominium owners, stockholders in cooperative housing associations, and renters are eligible for two direct tax credits from the Internal Revenue Service.
The residential energy credits are available to taxpayers who install any one of a number of IRS-approved energy-conservation items in their homes.
Because the credits have time restrictions (installation must have occurred after April 20, 1977, and before Jan. 1, 1986), it is important to plan now for your long-range energy expenditures. Tax credits can add up to a maximum of $2, 500.
One credit is for what the IRS calls "energy-conservation expenditures." These are items which are intended to reduce the amount of residential energy consumption through better-insulated homes and more-efficient heating systems.
Energy-conservation expenditures are eligible for a credit of up to $300, or 15 percent of the first $2,000 spent on the following items:
* Insulation for ceilings, walls, floors, hotwater heaters, and interior and exterior pipes.
* Caulking or weatherstripping of exterior windows or doors.
* Exterior storm or thermal windows or doors.
* Automatic setback devices for thermostats.
* Meters which display the cost of energy.
* Furnace replacement burners.
* Replacement of gas pilot lights for furnace ignition systems.
* Modification of flue openings.
The second credit is for "renewable energy source expenditures." The IRS allows a maximum credit of $2,200, or 30 percent of the first $2,000, plus an additional 20 percent of the next $8,000 spent on the installation of the following residential equipment:
* Solar energy source for heating, cooling, or hot water.
* Wind-energy equipment for generating electricity.
* Geothermal equipment for heating, cooling, or hot water.
The regulations governing both credits are similar. Credits may be taken for a homeowner's principal place of dwelling. Summer or vacation houses are not allowable residences.
The credits may be used for each new dwelling lived in, although items which are claimed for one house may not be moved to another house and claimed a second time. Items previously not installed may be taken as a credit in the new residence.
The energy-conservation equipment should have a life expectancy of three years, be new, and meet all government standards pertaining to the item. Equipment installed under the renewable energy source expenditures must last five years, meet government standards, and be new.
Not everything that saves on fuel and electricity now is allowable under the law. According to Robert Kobel of the IRS district office in Richmond, Va., there will be some changes in the law.
Some of those things not now covered are draperies, carpeting, siding, heat pumps, and wood-burning stoves.
"Wood-burning stoves were excluded from the law because at the time it was written Congress saw wood as a nonrenewable energy source and was hesitant to encourage the usage of wood-burning stoves by offering a tax credit for their installation," says Mr. Kobel.
Fortunately for homeowners, the law is quite simple and direct. For a more detailed accounting of allowable items, you can get in touch with your local IRS office and ask for a copy of the publication, "Energy Credits for Individuals (No. 903)." It was published in November 1978 and can be used in completing your 1979 tax return.
The publication fully explains what is and is not allowable and is one more indication of what can be done on the home front to save energy.