Energy Efficiency Tax Credit Available Under the American Recovery and Reinvestment Bill of 2009

Did you know existing homes are eligible for a series of efficiency measures that pertain to the home envelope (materials only, labor is not included in the credit basis)? There is a $1,500 cap for projects completed during the tax years 2009 and 2010. That means a taxpayer can only claim a credit of 30% of the project’s cost up to a maximum of $1,500.

What is eligible for the federal tax credits? Added insulation to walls, ceilings, or other parts of the building envelope that meet the 2009 IECC (& supplements) specifications. Replacement windows and skylights, and exterior doors which are equal to or below a 0.30 U factor and a Solar Heat Gain Coefficient (SHGC) of 0.30. Storm windows that meet the IECC in combination with their paired external window are eligible (taking into account the applicable climate zone). Storm doors paired with U-factor rated wood doors are eligible provided they do not exceed the default U-factor requirement for the combination. See the 2009 IECC for details. Window films certified by the manufacturer that the product meets the requirements of a "qualifying insulation system." Sealing cracks in the building shell and ducts to reduce infiltration and heat loss - these should be sealed so as to be consistent with the 2009 IECC.  Pigmented metal roofs, or an asphalt roof with cooling granules; must meet Energy Star requirements. Manufacturers and retailers should be able to help you tell whether a specific product qualifies.

What are the incentives for home heating & cooling equipment? Purchasers of highly efficient heating, cooling, and water heating equipment can take tax credits of 30% of installed cost for purchasing qualifying equipment, as detailed below. These credits are available for systems placed in service from January 1, 2009, through December 31, 2010. There is a $1,500 cap on the credit per home, including the amount received for insulation, windows, air and duct sealing.

Is there a cap on tax credits for geothermal, wind & solar? No. The residential alternative energy credit maximums of $2,000 for solar water heaters, $500 for each half kilowatt of electric capacity generated by wind turbine and $2,000 for geothermal heat pumps are eliminated for tax years 2009 through 2016.

What types of equipment qualify?

•High-efficiency gas, oil, and propane furnaces and boilers
•High-efficiency central air conditioning units, including air-source heat pumps (16 SEER or higher)
•NEW - Ground-source or geothermal heat pumps
•NEW - Biomass Stoves
•High-efficiency fans for heating and cooling systems
•High-efficiency water heaters, including heat pump water heaters

What are the efficiency requirements to qualify for the credits? Manufacturers and retailers should be able to help you tell whether a specific product qualifies. The qualification specifications are:

Central Air Conditioning Units:  Central air conditioning units and air-source heat pumps must meet the highest tier standards set by the Consortium for Energy Efficiency (CEE) as of February 17, 2009, which in most cases requires a Seasonal Energy Efficiency Ratio (SEER) of 16. SEER measures performance throughout the cooling season.

Biomass Stoves: Stoves must have a thermal efficiency of 75% as measured using a lower heating value, and be used to heat a dwelling unit or heat water for use in the same. The law defines biomass fuel as anything from agricultural crops, trees, wood wastes & residues to pellets, plants, grasses and fibers.

Fans for heating and cooling systems:  Fan uses no more than 2% of total heating system energy use, as defined by DOE test procedure. For more information, see the Gas Appliance Manufacturers Association web site. It is still unclear how the 2009 Stimulus legislation has impacted this incentive - it seems reasonable to assume that the cost basis will be the reasonable cost of the fan, not the entire furnace. IRS has yet to issue specific guidance on this issue.

Water Heaters:  Gas or propane water heaters—Energy Factor of at least 0.82, or a thermal efficiency of at least 90%.

Heat pump water heaters:  Energy Factor of at least 2.0

Where must the equipment be used? Under guidance issued by the IRS, equipment is eligible if installed in a home occupied by a taxpayer as their principal residence at the time the equipment is installed. This implies that equipment in new homes is generally not eligible since in new homes equipment is generally installed prior to occupancy. However, efficient equipment in new homes can help that home qualify for the new home tax credit.

What do I need to do to qualify for the incentives? Under the IRS rules, manufacturers need to certify that specific measures are eligible. Homeowners should obtain a copy of this certification from the manufacturer, installer or retailer when buying these products. Certifications don’t need to be submitted to the IRS, but should be kept on file in case the IRS has questions. Homeowners should also make notes on when each eligible measure is installed- only measures "placed in service" in 2009 or 2010 are eligible.

To apply for the incentive, use IRS form 5695. Please note that this version of the form is for 2008, and so does not include line items for the incentives discussed in this article. There will be a section for these incentives on the 2009 version of the form which will likely be available in early 2010.

The above information was taken from The Tax Incentives Assistance Project (TIAP) website, www.energytaxincentives.org. The Tax Incentives Assistance Project is sponsored by a coalition of public interest nonprofit groups, government agencies, and other organizations in the energy efficiency field. It is designed to give consumers and businesses information they need to make use of the federal income tax incentives for energy efficient products and technologies passed by Congress as part of the Energy Policy Act of 2005 and subsequently amended several times.