2007 is the last year that taxpayers can take advantage of the home
energy-savings credits. The energy-savings credits are broken down into
two categories:

o Building envelope components – These include insulation material or system, exterior windows (including skylights), exterior doors, and metal
roofs with appropriate pigmented coatings. These items qualify for a credit
of 10% of their cost, subject to an overall lifetime maximum credit of $500,
of which only $200 of the $500 limit can be from windows and skylights.
The IRS has clarified that a building component that provides structural
support or a finished surface, such as drywall or siding, does not qualify
for the credit.

o Qualified energy property – These items qualify for a 100% credit
subject to the overall lifetime $500 credit limit and item limits noted below:

- Electric heat pump water heater, electric heat pump, geothermal heat pump, central air conditioner, and natural gas, propane, or oil water heater meeting specific standards. Only $300 of the cost is credit-eligible.

- A qualified natural gas, propane, or oil furnace or hot water boiler. Only
$150 of the cost is credit-eligible; or

- An advanced main air-circulating fan. Only $50 of the cost is credit-eligible.

The credits are not phased out at higher-income levels, but are not deductible against the alternative minimum tax. Since the manufacturer will certify the materials that come with their products, the taxpayer does not have to determine whether a home improvement creates or saves energy.