Are you looking for ways to save money on home expenses and save on your tax liability also? Who can’t use that kind of help? For 2006 and 2007, you’re in luck! Homeowners taking certain energy-efficient measures can take advantage of two energy tax credits while also reducing utility costs at home. Now that’s a win/win situation!

Remember that tax credits are more valuable than tax deductions because credits give you a dollar for dollar increase in your refund or reduction in the amount you owe. A deduction will only reduce the amount of income you pay taxes on and, depending on your tax rate, might be worth 10 cents to 35 cents for every dollar you can deduct. These energy credits are also available to homeowners who don't have enough deductions to itemize.

As part of the Energy Tax Incentives Act of 2005, signed in August 2005, the following credits can help energy-efficient homeowners making upgrades in 2006 and 2007.

"Solar" Residential energy-efficient property credit

Earn a 30 percent credit up to a maximum of $2,000 per tax year for each category of solar equipment and $500 for each half-kilowatt of capacity of fuel cell plants installed per tax year. Owners of Co-ops and condominium can claim the credit by splitting the cost of installing equipment with other unit owners. Credits apply for the purchase and installation of:

• A residential solar water heater (pool heaters and hot tubs don’t qualify);
• Photovoltaic equipment for solar-generated electricity;
• Solar panels for home heating.

A more confusing credit, this one requires close attention to types of property purchased for installation in the home. The credit has an overall limit of $500, and qualifying property must meet or exceed criteria established by the 2000 International Energy Conservation Code (including supplements). Your preparer at Salem Tax & Financial can help with an exact determination of specifications. Home improvements eligible for the credit include:

• Energy-efficient building components installed in your main home (must be in the U.S.) such as insulation, exterior doors, exterior windows including skylights (maximum credit for windows is $200), and certain metal roofs;
• Energy-efficient heat pump water heaters, electric heat pumps, geothermal heat pumps, central air conditioners, and natural gas, propane, or oil water heaters (up to $300 credit);
• Natural gas, propane, or oil furnace, or hot water boiler (up to $150 credit);
• An advanced main air-circulating fan (up to $50 credit).

If you are a homeowner, now is the time to make your home improvements and save yourself money. All equipment for the two federal tax credits must be placed in service between January 1, 2006, and December 31, 2007 (but see also 2008 changes).