The recently enacted Energy Tax Incentives Act of 2005 includes new and substantial tax incentives for individuals to make energy-saving (and some energy-creating) improvements to their homes.The incentives come in the form of tax credits, which reduce federal tax bills on a dollar-for-dollar basis. Unlike many other tax credits contained in the Internal Revenue Code, these energy tax credits are not phased out for higher-income individuals. These credits are available for certain energy-saving home improvements made in 2006 and 2007.

Whether a home improvement creates or saves enough energy to qualify for a tax credit under the Energy Act's complex and technical rules will probably be determined based mainly on manufacturer certifications in the materials that come with their products. The individual taxpayer would have to determine whether her use of the equipment qualifies for the tax credits, and how to make the best use of them.

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