By now you’ve felt the impact of rising energy costs. With soaring energy prices, you can’t help but wonder how much of that high-priced heat is escaping during the cold, winter months through your non-thermal windows or drafty front door. And, during the summer, you get the feeling your air conditioner is pumping more dollar signs than cool air.

Under the recently revised Energy Savings Tax Act of 2005, tax credits are available for certain home improvements made in both 2006 and 2007, including insulation materials, exterior windows, skylights, exterior doors, qualified metal roofs, air-circulating fans, designated furnaces or water heaters, as well as certain heat pumps and air conditioners.

It is important for the homeowner to verify if a purchase meets the energy efficient criteria established by the IRS. Each manufacturer has a certification statement included in the packaging, or a certificate that can be downloaded from the company’s website. The certification will prove that the material you have purchased qualifies for the credit. Taxpayers should keep the certification document with his or her tax records. The certification should not be mailed to the IRS with your tax return when you claim the credit.

Taking advantage of the Tax Credit for Energy Efficient Improvements to Existing Homes will not only cut your tax bill, but also provide added energy savings. This credit has a lifetime ceiling of $500 and may not be taken against the Alternative Minimum Tax (AMT). A credit is often preferable to a deduction. For example, a $1.00 credit reduces your tax bill by $1.00, while a $1.00 deduction will only reduce your tax bill by .15 to .35 cents.

There are two categories of improvements that qualify for this credit. A Category One expenditure is an improvement to the “building envelope.” The IRS defines a “building envelope” as (1.) insulation materials or similar energy saving system, (2.) exterior windows, including skylights, (3.) exterior doors, and (4.) a metal roof with appropriately colored coatings that are designed to reduce heat gain. Taxpayers are eligible to receive a credit of 10 percent of the cost of these items. (The IRS has limited the maximum credit for windows to $200.)

Taxpayers are eligible to receive a dollar-for-dollar tax credit for Category Two expenditures. This category, however, has three specific caps. The IRS allows a $50 maximum for each advanced main air circulating fan installed in a furnace; a $150 cap for each qualified natural gas, propane, or oil furnace or hot water heater; and a $300 maximum for each qualified energy efficient

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