Energy-efficient Improvements

• Item number two under Part I, Nonbusiness Energy Property Credit, has four separate lines for entering qualified energy-efficient improvements. Line 2a is for reporting the amount paid for insulation material. Line 2b is for exterior windows with a maximum cost of up to $2,000. Line 2c is for entering the price of exterior doors that meet or exceed the International Energy Conservation Code (IECC) for your climate zone. Line 2d is for the cost of a metal roof designed to meet or exceed Energy Star requirements for reducing heat gain in the home. The total of 2a through 2d is placed on Line 3 of Form 5695.
  
  

Residential Energy Property Costs

• On Line 5a enter the amount paid for energy-efficient building components up to a total of $300. The primary examples listed on Form 5695 are heat pumps that meet minimum heating seasonal performance factors, seasonal energy efficiency ratings and energy efficiency ratings established by the Department of Energy and the Consortium of Energy Efficiency. Enter the cost of a furnace with a fuel utilization efficiency rating of 95 or above and a maximum value of $150 on Line 5b. Line 5c is for the cost of an advanced main air circulating fan located in a furnace. The fan should use no more than 2 percent of the total energy consumed by the furnace and have a maximum value of $50. The residential energy property cost questions allow for inclusion of installation costs when calculating your total expense. Add Lines 5a through 5c and enter the total on Line 6.
  
  

Residential Energy-efficient Property Credit

• Part II of Form 5695 deals with solar and fuel cell costs. Solar credits can be applied to a home that is not your main residence and can include installation costs. On Line 13 of Part II enter your qualified solar electric property costs for 2006. Solar panels that generate electricity for use in the home are reported here. On Line 17 enter the total solar water heating property costs. Qualified solar water heaters must derive 50 percent or more of their power from the sun and be approved by the Solar Rating Certification Corporation. Report fuel cell property costs on Line 21. Each total is multiplied by 30 percent. This calculation is then compared to the maximum credit of $2,000. The smaller number is the credit.
  
  

Totals for 2006 Form 5695

• To arrive at the total Residential Energy Credits for 2006, you will need to obtain Form 1040 for 2006. For both the nonbusiness energy property credit and the residential energy-efficient property credit, you must compare the total of your energy credits to the Tax and Credits section of Form 1040. If the credits reported are greater than the taxes reported on Form 1040, your energy credit is reduced to zero. If your tax liability is greater than your credits, you can claim an energy credit.