Beefed-up tax credits for energy-efficient home improvements in the new economic stimulus package are expected to help increase demand for green renovation projects this year and next.
The Internal Revenue Code Section 25C for existing homes, which had expired at the end of 2007, was reinstated as part of the economic rescue package passed by the Bush Administration last fall. Installing energy-efficient windows, doors, roofing and insulation as well as furnaces, air conditioners and heat pumps all qualified for the credit.
But remodelers found that the terms of the 25C credit — equal to only 10% of the cost of each product and with a lifetime cap of $500 — weren’t quite strong enough to get enough home owners off the fence and into a contract.
Under the stimulus legislation signed by President Obama, the percentage of the cost and lifetime cap have been tripled to 30% and $1,500, respectively; the list of eligible improvements has been expanded and the deadline for installing them has been extended through the end of 2010.
The newly expanded tax credit also is in alignment with industry research showing that remodeling and retrofitting the nation’s older homes will have a far more significant impact on reducing residential energy consumption than meeting even the most aggressive efficiency goals for new homes, according to Greg Miedema, CGR, CGB, CAPS, chairman of NAHB Remodelers.
“These new tax credits are another way that the home building industry can combat the potential effects of global climate change by encouraging home owners to make energy-efficient improvements to their homes,” said Miedema.
A 2008 California study showed that homes built before 1983 were responsible for 70% of the greenhouse gas emissions related to single-family envelope energy consumption.
The study also found that spending $10,000 to retrofit a 1960s home could save 8.5 tons of carbon at a cost of $588 to $1,176 per ton, depending on existing tax credits and incentives. By comparison, increasing the energy efficiency of a new home 35% over current state requirements would cost about $5,000 and would reduce emissions by 1.1 tons at a cost of $4,545 per ton.
The bottom line is that retrofitting existing homes with energy-efficient features is four to eight times more carbon- and cost-efficient than adding further energy-efficiency requirements to new housing, the study showed.
Tax Credit How-to
Details on qualifying improvements are expected to be available soon on the IRS Web site.
Remodelers should familiarize themselves with the model types and products that qualify for the tax credit so they can advise their customers. However, they do not need to give their clients the product sales receipts to verify the claim. Certification statements in the manufacturer’s product information may suffice.
Home owners can claim the 25C credit on Form 5695 when they prepare their income tax returns. They should also retain records that include:
* Name and address of the manufacturer
* Identification of the component
* Make, model or other appropriate identifiers
* Statement that the component meets the 25C standards
* Climate zones for which the criteria are satisfied
* Additional information for storm windows, if applicable
* A declaration that the certification statement is true