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The Energy Tax Incentive Act of 2005 was signed by President George W. Bush on August 8, 2005. It contains numerous deductions and credits that affect both business and individual taxpayers. With the proper knowledge and understanding of these incentives, taxpayers can maximize their tax savings.

Some of the energy incentives available to businesses, residential owners, and individuals are as follows:

Commercial Building Energy Conservation
Congress developed this incentive for businesses with the idea that companies would consider upgrading their lighting, cooling and heating systems and building insulations (such as windows and doors) if they provided some benefit. Their goal was for business owners and lessees to conserve energy. Owners of business buildings can deduct up to $1.80 per square foot for energy efficient improvements as long as they fall within the following criteria.

The property must be:

• Depreciable and located in the United States.
• Placed in service after December 31, 2005 and before January 1, 2008.
• Part of the interior lighting system, heating and cooling system or building insulation, and
• Annual energy costs are reduced by 50% or more and directly related to the energy improvements.

A partial deduction is available if energy costs are reduced by 16 2/3 percent. The IRS requires that the taxpayers obtain a certification from the contractor regarding the energy cost savings and use the Performing Rating Method (PRM) to compute the reduction in energy costs.

Construction of New Energy Efficient Homes
The credit is either $2,000 or $1,000 per home depending upon the type of home and energy reduction standard it meets. These homes must be substantially completed after August 8, 2005 and must be purchased after December 31, 2005 and before January 1, 2008.

Business Solar Energy Credit There is a 30% tax credit up to $2,000 available for the purchase of qualifying residential solar water heating, photovolfaic equipment and $500 for each half kilowatt of capacity for fuel cells.

Residential Energy Efficiency Incentives
Provides owners of residential properties a personal tax credit of 10% of the amount paid or incurred for qualified energy efficient improvements. The property must be placed in service after December 31, 2005 and before January 1, 2008. The maximum credit allowed is $500 for each year. Some examples of property qualifying for the credit include qualifying energy efficient oil and gas furnaces, hot water boiler, air circulating fans and energy efficient appliances such as clothes washers, refrigerators and dishwashers.

Alternative Fuel Motor Vehicle Credit
This new credit is eligible for four types of vehicles including qualified fuel cell, advanced lean burn, hybrid and alternative fuel vehicles. Alternative fuel is compressed or liquefied natural gas, petroleum gas, or hydrogen containing at least 85% methanol. The manufacturers must submit a certification to the IRS outlining the following:

• Vehicle's make, model and year
• Alternative fuel used by vehicle
• Retail price and computation of credit

The vehicle must be acquired for use or lease by the taxpayer and not for resale after December 31, 2005 and before January 1, 2011. If the vehicle is leased, tax credits must be recaptured to the extent that the lease period is less than the economic life of the vehicle. The taxpayer is not responsible for additional taxes if a taxpayer relies upon a manufacturer's certification that is later withdrawn by the IRS.

As stated above, the current crop of energy tax incentives generally expire at the end of 2007. Currently, there are bills in Congress to extend these credits beyond their sunset dates. However, one can argue that by extending these credits, the work will get postponed to a later date whereas the original objective was to conserve energy "now" especially in our current environment of soaring oil and gas prices. One needs to recognize the time it takes to design plans that will conform to the guidelines set forth by the IRS in order to qualify for these energy incentives and the time needed for the work to be completed by the sunset dates. We should keep in mind that the President signed the Energy Policy Act to give all Americans energy efficient choices.