Energy Savings Tax Act of 2005 - How You Can Benefit with your Own Taxes

There are a lot of good reasons to buy energy efficient products. They are good for the environment, they reduce dependence on oil, and they are often more affordable to own and operate. Add to this list of reasons that energy efficient products add up to major tax deductions. The Energy Policy Act of 2005, also known as EPACT, offers home owners and business owners alike tax credits for purchasing energy efficient goods. Note that this is a tax credit, which translates to a dollar for dollar reduction in your tax bill, unlike a tax deduction, which only reduces your bill a percentage of the deduction amount. The dollar for dollar tax credit can knock a significant chunk off of your total tax bill.

The first place you can take advantage of the EPACT tax credit is in your home. Replace your older appliances with newer, more energy efficient appliances, and claim that expense back when tax time rolls around. Additionally, you can make improvements to your home that make it more energy efficient, like adding insulation, replacing drafty windows, and repairing a leaky roof, and claim that money back. There are certain energy efficiency minimum standards that products must meet to qualify for a tax credit under EPACT, and the efficiency of your product may determine the amount of credit you can claim. A general rule of thumb is that the federal government allows you to claim 30% of the purchase price back, not to exceed $2,000, but you should consult the IRS or a tax specialist to determine the exact credit that applies to you.

Another way to take advantage of EPACT is through the car you purchase. When you buy a hybrid car, you are eligible for a tax credit ranging from $200 to $3600. The credit you get depends on the make and model of the car and the fuel efficiency of that model. If you buy more than one hybrid car, then you can claim the credit for each one you buy. In some cases, the dealership that sells the car may also be eligible for the tax credit. The catch here is that the tax credit expires after a certain number of a certain model is sold. The car dealership can advise you if the credit is still in effect for the vehicle you are considering purchasing. Again, make sure to check with the IRS or a tax expert to find out the amount of the credit to which you are entitled.

Businesses can benefit from EPACT in the same way private individuals can. Upgrading office equipment to more energy efficient models, making improvements to the office building to make it more energy efficient, and replacing old company cars with hybrid models all add up to tax credits for businesses. Additionally, businesses that are involved in fields that promote energy efficiency, such as businesses that trade in alternative fuels or builders who build energy efficient homes can cash in on extra tax credits.

EPACT is in effect until December 31, 2007, at which point the bill can be renewed by Congress, or scrapped. The important thing to remember is that there is no such thing as a one size fits all tax law; when you are getting into the area of complex tax credits, you should seek some guidance from a financial advisor to help you find all of the credits you are entitled to, without inadvertently claiming those to which you are not entitled. Used properly, however, EPACT can have a major impact on your final tax bill.

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