| Vol. 10 | No. 1 | Winter 2007-2008 |
 |
Close to Home
Lower Your Impact—and Your Taxes |
If you have made energy-saving home improvements or bought a fuel-efficient vehicle this year, you may qualify for tax credits on your 2007 federal income tax return. These incentives can help offset the higher up-front cost of some environmentally friendly technologies and reduce their overall payback time.
An Extra Boost for Clean Energy
About 55 percent of the energy used in a typical home each year goes toward heating and cooling. You can receive a $150 tax credit for buying an energy-efficient furnace or boiler and a $300 credit for an efficient central air conditioning system or water heater. If you have already upgraded this top-priority equipment, consider replacing your roof, windows, or exterior doors, or adding insulation, all of which qualify for tax credits and help lower heating and cooling costs. The Energy Star website (www.energystar.gov) offers a full list of eligible purchases.
Bear in mind that the maximum tax credit for all home improvements combined over a two-year period is $500. So any credits claimed on your 2006 return will affect how much you can claim on your 2007 return.
Certain renewable energy systems, however, are eligible for tax credits that are not restricted by the $500 limit on the home improvements described above. For example, if you install solar photovoltaic (PV) panels or a solar water heater, you can receive a credit worth 30 percent of the system's cost (up to a maximum of $2,000). This can significantly ease the burden of your initial investment, which can total between $2,000 and $6,000 for solar water heaters and $20,000 or more for PV systems.
Additional incentives may be available through your electric utility or state or local government. In Washington, DC, for example, residents who buy a qualifying energy-efficient furnace not only receive the $150 federal tax credit but also a tax credit from the district government equal to 20 percent of the equipment's cost (up to a maximum of $500). Like the federal program, this $500 limit applies to all eligible home improvements. Such discounts often make energy-efficient products less expensive than their conventional counterparts; for a list of incentives in your area, visit the online Database of State Incentives for Renewables & Efficiency at www.dsireusa.org.
Other Opportunities for Savings
Financial incentives also extend beyond the home. For instance, purchases of certain hybrid vehicles are eligible for a federal tax credit, the value of which depends on how fuel-efficient the hybrid is compared with its conventional counterpart: a 2007 Ford Escape Hybrid qualifies for an estimated $2,600 credit while a 2007 Honda Civic Hybrid qualifies for a $2,100 credit. Unfortunately, Toyota's popular hybrids (including the Prius and Camry Hybrid) are no longer eligible. A list of federal and state hybrid incentives is available on the UCS HybridCenter website (www.hybridcenter.org).
If you can't get to the car showroom or hardware store before January 1, you will still be able to take advantage of many of these incentives on your 2008 tax return. And, incentives aside, all of these investments will help you save money and energy while reducing your contribution to global warming.
Also in this issue of Earthwise:
Dialogue
How will the EPA's revised fuel economy testing proceedures affect new cars and trucks?
