Management

ENERGY CREDITS FOR HOMEOWNERS

The Treasury Department and the IRS have released Notice 2006-26 providing guidance on tax credits for homeowners who make energy-efficient home improvements. The Energy Policy Act of 2005 added a new Nonbusiness Energy Property Credit (IRC §25C) available for tax years 2006 and 2007 (filing seasons 2007 and 2008) only. There are two categories of property that qualify for the credit.

Qualified energy efficiency improvements. These are eligible building envelope components that meet or exceed criteria established by the 2000 International Energy Conservation Code that are installed in the taxpayer's primary residence. Eligible items are:

* Insulation material or systems.

* Exterior windows, skylights, or doors.

* Storm windows and storm doors installed over certain types of windows and doors.

* Metal roofs.

Taxpayers may rely on the manufacturer's certification statement that an item is an eligible building envelope component, with this caveat: the component must be installed in a climate zone identified in the certification statement. In addition, storm windows and storm doors must be installed over the type of exterior window or exterior door specified in the statement. As an alternative to a manufacturer's certification statement, taxpayers may treat exterior windows and skylights bearing an Energy Star Label as eligible building envelope components provided the property is installed in the region identified on the label.

Residential energy property expenditures. Similarly, taxpayers may rely on manufacturer's certification statements to claim the Nonbusiness Energy Property Credit for qualified energy property including:

* Electric and geothermal heat pumps.

* Central air conditioners.

* Natural gas, propane, or oil water heaters.

* Natural gas, propane, or oil furnaces.

* An advanced main circulating fan used in a natural gas, propane, or oil furnace.

Credit amount. The Nonbusiness Energy Property Credit is equal to the total of:

* 10% of the purchase price of each eligible building envelope component ($200 maximum for windows).

* $50 for each advanced main circulating fan.

* $150 for each qualified natural gas, propane, or oil furnace or hot water heater.

* $300 for each item of other qualified energy efficient property.

The maximum lifetime credit for all types of property combined is $500. Of this total, not more than $200 can be for exterior windows. The property must be original use property installed in the taxpayer's main home in the United States.

Note: Although the IRS release also mentions the IRC §25D credit for solar and fuel cell heating equipment, Notice 2006-26 does not provide any additional guidance for this credit. Presumably that will come with a future notice.

? IRS news release 2006-34 http://www.irs.gov/newsroom/article/0,,id=154657,00.html

? Notice 2006-26 http://www.irs.gov/pub/irs-drop/n-06-26.pdf

ENERGY CREDITS FOR HOME BUILDERS

The Energy Policy Act of 2005 also introduced a new Energy Efficient Homes Credit (IRC §45L) of up to $2,000 for contractors who construct qualified energy efficient homes. A home qualifies if:

* It is a new home located in the United States;

* Its