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AS SEEN IN USA TODAY’S MONEY SECTION, AUGUST 1, 2006

u Energy-efficient property. This tax credit will primarily benefit homeowners interested in using solar energy to heat and cool their homes. These credits have annual instead of lifetime caps. Keep in mind, though, that unless Congress extends the credit, you won't be able to claim the credits after 2007, Scharin says.

Homeowners who install a photovoltaic system to generate electricity can claim a credit for up to 30% of the cost, up to $2,000 a year. A separate credit for up to $2,000 a year is available for homeowners who install solar-powered hot water systems, as long as they're not used to heat a swimming pool or hot tub.

These credits are available for primary and vacation homes.

You can carry over unused credits, says Mel Schwarz, legislative director for Grant Thornton in Washington. For example, if you spend $20,000 on a

Maximum savings

Amount of tax credits for energy- efficient home improvements. The maximum lifetime credit for all eligible improvements is $500.

Improvement

Max. credit

Central air conditioner $300

or heat pump

Furnace or boiler

$150

Windows

$200

Insulation and sealing

$500

Source: Alliance to Save Energy

photovoltaic system this year, you can claim a $2,000 credit on your 2006 tax returns, and a $2,000 credit in 2007.

Eligible improvements

To qualify for the tax credit, your home improvements and purchases must meet complicated energy-saving definitions outlined in the energy bill. Fortunately,

the IRS says you can rely on the manufacturer to determine whether a product meets the federal standards, Scharin says.

When you purchase windows, storm doors or a new air conditioner, ask for certification that they're eligible for the credit. Make sure you file the certification, along with receipts for your purchases, with your tax documents, Scharin says. Otherwise, your tax preparer may overlook the tax break.

You and your tax preparer should find out whether your state offers tax credits for energy-efficient improvements. In Oregon, for example, residents who install energy-efficient appliances, heating and air conditioning units are eligible for up to $1,000 in tax credits. To check out your own state's tax incentives, click on the Database of State Incentives for Renewable Energy, www.dsireusa.org.

Reprinted with permission. All rights reserved.

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