Get Tax Credit for Energy Efficiency

Friday, March 19, 2010

by Vanessa Saunders

Hurry, Hurry, Hurry! Times running out for this great tax credit opportunity -Take advantage of improved tax credits available for a number of energy-efficient home improvements. Find a professional remodeler in your neighborhood at www.nahb.org/remodel to get excellent advice – and your assurance of a project well done.

The Existing Home Retrofit Tax Credit (Tax Code Section 25C): Tax credits are available at 30 percent of the cost, up to a $1,500 lifetime limit, for installation in 2009 & 2010 (for existing homes only) of these products:

Building envelope components (Installation costs not included):

Qualified energy products (Installation costs may be included):

Electric heat pump water heaters that yield an energy factor of at least 2.0 in the standard Department of Energy test procedure.
Electric heat pumps and central air conditioners that achieve the highest efficiency tier established by the Consortium for Energy Efficiency as of Jan. 1, 2009.
Natural gas, propane or oil water heaters with an energy factor of at least .82 or thermal efficiency of at least 90 percent
Biomass burning stoves with a thermal efficiency rating of at least 75 percent as measured using a lower heating value
Natural gas and propane furnaces that achieve an annual fuel utilization efficiency rate of not less than 95
Natural gas, propane, or oil water boilers and oil furnaces that achieve an annual fuel utilization rate of not less than 90
Advanced main air conditioning fans with annual electricity use of no more than 2 percent of the total annual energy use of the furnace

The Wind, Solar, Geothermal and Fuel Cell Tax Credit (Tax Code Section 25D): Tax credits are available at 30 percent of the cost, with no cap through 2016, for existing homes and new construction, for:

The energy-efficiency home products must be “placed in service” between Jan. 1, 2009 and Dec. 31, 2010. The credits are only valid for improvements made to the taxpayer's principal residence, except for qualified geothermal, solar, wind property, which can be installed on any home used as a residence by the taxpayer.

Home owners can claim the 25C and 25D credits on Form 5695 when they file their income tax returns. Check with your tax professional to ensure correct application of the energy-efficiency tax credit. Retain all receipts as well as records that include:

Name and address of manufacturer
Identification of the class of eligible building envelope component
Make, model number and any other property identifiers
A statement that the component is eligible for the credit (may include U factor, class of window or door, etc.)

For a short, one-page description of the energy efficiency tax credits, download this fact sheet.

IRS Clarifies What Qualifies for Home Owner Energy Tax Credit

The Internal Revenue Service has published new guidance on Internal Revenue Code Section 25C, which allows up to a $1,500 tax credit for home owners who install energy-efficient windows, insulation and other qualifying products. The tax credit is equal to 30 percent of the qualified energy efficiency expenses paid by the home owner, but it is limited to $1,500 for improvements made during 2009 and 2010.

Notice 2009-53 explains the requirements for home owners to claim the 25C credit and provides detailed technical information regarding what improvements can qualify. Home owners can claim the credit only for improvements made to an existing home. However, NAHB has learned from the IRS that tax credit-qualified improvements installed in an addition to an existing home also qualify for the 25C program.

Among the highlights:

Tax credit eligible products must be reasonably expected to remain in use for at least five years. One method taxpayers can rely on to satisfy this requirement is to purchase products from a manufacturer who offers a warranty lasting at least two years at no additional cost.
Not all Energy Star-rated products that are installed qualify for the tax credit. The Energy Star Web site includes a detailed listing of products that qualify for the section 25C program.
The credit excludes installation costs for building envelope components — such as insulation and windows. In order for the home owner to claim the credit, the remodeler must provide an itemized breakout of the cost of these installed products, minus any labor or installation charges.

Also of importance, Notice 2009-53 provides the set of transition rules for qualified products installed before June 1, 2009. For these installations, taxpayers can claim for tax credit purposes the installation of property that meets less stringent energy efficiency requirements.

In particular, taxpayers can claim the credit for installation of windows and skylights that meet Energy Star requirements, requirements listed under prior IRS Notice 2006-53 or manufacturers’ certifications for 25C made under IRS Notice 2006-53. For installations on or after June 1, the requirements listed in Notice 2009-53 and described above are binding.

NAHB Teleconference on Claiming Energy-Efficiency Tax Credits

Newly expanded federal tax credits for energy efficiency are providing consumers with added incentives for upgrading their homes. Homeowners now can claim up to $1,500 in tax credits for remodeling their principal residence to reduce energy consumption through the enhanced Existing Home Retrofit (25C) tax credit. During a media teleconference next week, NAHB’s Director of tax issues discussed how to take advantage of the credit, while three professional remodelers from around the country provided examples of the types of projects that may qualify, such as adding insulation, replacing doors and windows, and updating heating and cooling systems. The panelists also provided guidance on selecting a qualified remodeler and certifying home remodelers under the National Green Building Standard, which is the only national standard to certify green home remodeling and renovation projects.

Learn more about how to plan a remodel and hire a professional remodeler at www.nahb.org/remodel.

Use this chart as quick reference for what product specifications may qualify for the tax credit.

SUMMARY OF TAX CREDITS FOR HOMEOWNERS

Product Category	Product Type	Tax Credit Specification	Tax Credit	Notes
Windows & Doors	Exterior Windows and Skylights	U factor <= 0.30 SHGC <= 0.30	30 percent of cost, up to $1,500²	Not all ENERGY STAR labeled windows and skylights qualify for tax credit.
	Storm Windows	Meets IECC¹ in combination with the exterior window over which it is installed, for the applicable climate zone	30 percent of cost, up to $1,500²	Manufacturer Certification Statement³ will list classes of exterior window (single pane, clear glass, double pane, low-E coating, etc.)⁴ that a product may be combined with to be eligible in specific climate zones.
	Exterior Doors	U factor <= 0.30 SHGC <= 0.30	30 percent of cost, up to $1,500²	Not all ENERGY STAR doors will qualify.
	Storm Doors	In combination with a wood door assigned a default U-factor by the IECC¹, and does not exceed the default U-factor requirement assigned to such combination by the IECC	30 percent of cost, up to $1,500²
Roofing	Metal Roofs, Asphalt Roofs	ENERGY STAR qualified	30 percent of cost, up to $1,500²	All ENERGY STAR metal and asphalt roofs qualify for the tax credit. Must be expected to last five years OR have a two-year warranty.
Insulation	Insulation	Meets 2009 IECC & Amendments	30 percent of cost, up to $1,500²	For insulation to qualify, its primary purpose must be to insulate. (example: vapor retarders are covered, insulated siding does not qualify). Must be expected to last five years OR have a two-year warranty
HVAC	Central A/C	Split Systems: EER >=13 SEER >= 16 Package systems: EER >= 12 SEER >= 14	30 percent of cost, up to $1,500²	For a list of qualified products, go to the Consortium for Energy Efficiency product directory, click on Air Conditioners, then in the “CEE Tier” enter “Residential Advanced Tier 3” for CAC Split Systems, and "Residential Tier 2" for CAC Package Systems and ASHPs. Note — not all ENERGY STAR products will qualify for the tax credit.
	Air Source Heat Pumps	Split Systems: HSPF >= 8.5 EER >= 12.5 SEER >= 15 Package systems: HSPF >= 8 EER >= 12 SEER >= 14	30 percent of cost, up to $1,500²
	Natural Gas or Propane Furnace	AFUE >= 95	30 percent of cost, up to $1,500²	For a list of qualifying products go to the Gas Appliance Manufacturing Association Not all ENERGY STAR products will qualify for the tax credit.
	Oil Furnace	AFUE >= 90	30 percent of cost, up to $1,500²
	Gas, Propane, or Oil Hot Water Boiler	AFUE >= 90	30 percent of cost, up to $1,500²
	Advanced Main Air Circulating Fan	No more than two percent of furnace total energy use	30 percent of cost, up to $1,500²
Water Heaters	Gas, Oil, Propane Water Heater	Energy Factor >= 0.82 or a thermal efficiency of at least 90 percent.	30 percent of cost, up to $1,500²	Not all ENERGY STAR gas storage and gas condensing water heaters will qualify for the tax credit. All ENERGY STAR gas tankless models will qualify. All ENERGY STAR gas tankless water heaters will qualify. For a partial list of qualifying products go to the Air Conditioning, Heating, and refrigeration Institute (AHRI)
Water Heaters	Electric Heat Pump Water Heater	Same criteria as ENERGY STAR: Energy Factor >= 2.0	30 percent of cost, up to $1,500²	All ENERGY STAR electric heat pump water heaters qualify for the tax credit.
Biomass Stove	Biomass Stove	Stove which burns biomass fuel⁵ to heat a home or heat water. Thermal efficiency rating of at least 75 percent as measured using a lower heating value.	30 percent of cost, up to $1,500²
Geo-Thermal Heat Pump	Geo-Thermal Heat Pump	Same criteria as ENERGY STAR: Closed Loop: EER >= 14.1 COP >= 3.3 Open Loop: EER >= 16.2 COP >= 3.6 Direct Expansion: EER >= 15 COP >= 3.5	30 percent of the cost	All ENERGY STAR geo-thermal heat pumps qualify for the tax credit. Use IRS Form 5695 Must be “placed into service” before Dec. 31, 2016.
Solar Energy Systems	Solar Water Heating	At least half of the energy generated by the “qualifying property” must come from the sun. Homeowners may only claim spending on the solar water heating system property, not the entire water heating system of the household. The credit is not available for expenses for swimming pools or hot tubs. The water must be used in the dwelling. The system must be certified by the Solar Rating and Certification Corporation (SRCC).	30 percent of cost	All ENERGY STAR solar water heaters qualify for the tax credit. Use IRS Form 5695 Must be placed in service before December 31, 2016.
Solar Energy Systems	Photovoltaic Systems	Photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirement.	30 percent of cost	Use IRS Form 5695 Must be placed in service before Dec. 31, 2016.
Small Wind Energy Systems	Residential Small Wind Energy Systems		30 percent of cost	Use IRS Form 5695 Must be placed in service before Dec. 31, 2016.
Fuel Cells	Residential Fuel Cell and microturbine system	Efficiency of at least 30 percent and must have a capacity of at least 0.5 kW.	30 percent of the cost, up to $1500 per .5 kW of power capacity	Use IRS Form 5695 Must be placed in service before Dec. 31, 2016.

¹Either the 2001 Supplement of the 2000 International Energy Conservation Code or the 2004 Supplement of the 2003 International Energy Conservation Code.

²Subject to a $1,500 maximum per homeowner for all improvements combined.

³A Manufacturer’s Certification is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. The IRS encourages manufacturers to provide these Certifications on their website to facilitate identification of qualified products. Taxpayers must keep a copy of the certification statement for their records, but do not have to submit a copy with their tax return.

⁴Additional information on exterior window features may be viewed at Anatomy of an Energy Efficient Window.

⁵Biomass Fuel means any plant-derived fuel available on a renewable or recurring basis, including agricultural crops and trees, wood and wood waste and residues (including wood pellets), plants (including aquatic plants), grasses, residues, and fibers.

The IRS defines “placed in service” as when the property is ready and available for use.

This information comes from Energy Star, for more information visit the Energy Star Web site at www.energystar.gov/taxcredits.

To learn more about remodeling visit NAHB Remodelers at www.nahb.org/remodel.