You may be able to save money on taxes if you act before the end of the year. Check out the tax breaks for energy projects, home improvement and lending fees.
By Liz Moyer, Forbes.com

While you're decking your halls, it might make sense to take a few minutes to think about your real estate tax strategies.

A little planning in 2006 could lighten your tax burden considerably, especially if you're still kicking yourself over tax breaks you could have taken this year but somehow overlooked, or over the tax breaks you thought you had lined up in late 2004 that came back to bite you later.

Credits for energy projects
First, the new stuff. Have you installed a solar heating system since January? You get to take advantage of a new law that went into effect this year that knocks off as much as 30% of the cost of certain projects meant to increase a house's energy efficiency.

For example, you can qualify for a credit for 10% of the cost of insulation systems that reduce heat loss or gain and for a credit of 30% off the cost of solar panels (up to $2,000 for this tax year). A 30% credit is also available for a solar water-heating system. Just don't get clever and try to apply that to a solar heating system on your pool or hot tub -- they don't count.

There is also a tax credit for qualified fuel-cell power plants, which convert fuel into electricity. Qualified fuel-cell power plants come with a 30% tax credit -- up to $500 for each 0.5 kilowatt of capacity.

Home improvement and lending fees
Apart from the energy tax credits, there are a lot of simple rules many people forget or overlook. Loans for substantial home improvements, such as adding a driveway, a new room or a porch or deck, are deductible, for example. This is not the case for repainting, plastering, patching a roof or fixing windows, however.

Fees paid to mortgage lenders, called points, are also deductible the year you take out the mortgage. So, if you've traded up this year, remember to make a note of those payments. Points are deductible on mortgage refinancings, too, but you have to spread the cost over the life of the new loan.

Most importantly, beware of setting yourself up for the dreaded Alternative Minimum Tax. This is an issue that has been popping up more frequently now that inflation is on the rise and, thus, more Americans fall under the AMT umbrella, or into its web, as it were.

The AMT was designed to force wealthy individuals pay a minimum amount in federal income tax. The trick is, it does not account for inflation, and so more Americans are falling under it as their incomes increase. The best way to avoid getting caught up in it is to sit down with your tax adviser or financial planner and look at your real estate tax situation.

Where conventional wisdom once held that you should pay real estate taxes this year to take the deduction, that doesn't hold up now. It could well push you into the category of AMT payers. Ditto selling your property now and potentially realizing a taxable gain, rather than waiting until the new year.