Saturday, June 23rd 2018
 

Tax Credits as Incentives to Build Green


The end of tax season is almost upon us.  Have you filed yet?  I haven’t.  And, I’m betting quite a few of you are waiting until the last moment to file as well.  So, I’m going to help you out.  * I hope.*

You might have noticed I typically blog about environmental issues.  So, my take on the whole paying taxes topic will not shock you.  Prepare to be dazzled by a primer on ways the federal government is subsidizing your investments in energy efficiency.

Are your eyes starting to drift shut as you doze off?  Hold off for a few more paragraphs.  You might thank me later.  Especially when I tell you that simple home improvements can net you up to a $1,500 tax credit.  All it takes is filling out one extra form:  IRS Form 5695.

Ugh, what’s a tax credit?  Why, I’m so happy you asked.  A tax credit doesn’t work like an instant rebate.  Instead, it’s a rebate that you get on your federal income tax form at the end of your filing year.  The tax credit increases your tax refund or it reduces the amount you owe the government.

So, why am I so excited?  It’s because tax credits tend to be more valuable when compared to similar tax deductions.  Credits reduce the amount you owe or are due, dollar for dollar.  But tax deductions lower your taxable income.  Here is an example from the Tax Incentives Assistance Project (TIAP) that illustrates my point:

If you are in the highest 35-percent tax bracket, the income tax you pay is reduced by 35% of the value of a tax deduction. But a tax credit reduces your federal income tax by 100 percent of the amount of the credit.

So, here’s the lowdown.

In February 2009, Congress passed an economic stimulus package, The American Recovery and Reinvestment Tax Act of 2009 that included many elements that promoted energy efficiency and renewable energy.  That act included incentives for home-owners to improve the energy efficiency of their primary residences.  The three most essential elements of the incentives program, which covers upgrades to existing homes for 2009 and 2010 tax years, are:

  • Home envelope improvements, as well as upgrades in heating, cooling and water heating equipment are covered.  The cap on the incentives is $1,500 for the two year period between 2009-2010 and labor costs are not covered.
  • On-site renewables – solar power cells, small wind turbines, and geothermal heat pumps – are eligible for tax incentives of 30% of the total cost, without a cap.
  • New incentives for plug-in electric vehicles and plug-in conversion kits.

Practically speaking, here is what this means for you.  If you installed:

  • Exterior windows: Includes skylights and storm windows.
  • Insulation, exterior doors, or roofs: Includes seals to limit air infiltration, such as caulk, weather stripping, and foam sealants, as well as storm doors.
  • Central air conditioner, heat pump, furnace, boiler, water heater, or biomass (e.g. corn) stove: Starting in 2009, geothermal heat pumps are instead eligible for a separate tax credit

You may  be eligible for the federal tax credits if you also meet these conditions:

  • Windows, doors, insulation, and roofs must be expected to last at least five years (a two-year warranty is sufficient to demonstrate this).
  • Manufacturers can certify (in packaging or on the company’s web site) which of their products qualify for the tax credit. Retailers, contractors, and manufacturers should be able to help you determine what levels of insulation and what other products qualify.
  • All the improvements must be installed in or on the taxpayer’s principal residence in the United States. Condo and co-op improvements are apportioned to the owners.

The Alliance to Save Energy publishes a helpful chart which summarizes the standards for these products, if you are seek to claim a tax credit.  We include it below:

Product Placed in Service between
Jan. 1, 2009 and Feb. 17, 2009
Placed in Service between
Feb. 18, 2009 and Dec. 31, 2010
Notes
Exterior Windows (includes skylights and storm windows) and doors
  • Must meet the requirements for your region of the 2001 or 2004 International Energy Conservation Code, a model energy code for buildings. All ENERGY STAR windows qualify.
  • Must meet the requirements for your region of the 2001 or 2004 International Energy Conservation Code, a model energy code for buildings.
  • Must be equal to or below a U factor of .30 and SHGC of .30.
Only some Energy Star windows will qualify; however, for exterior windows and skylights purchased before June 1, 2009, the IRS and US Treasury announced grace period during which existing manufacturer certifications and Energy Star labels will be accepted. From June 1 onwards, the new, more stringent, criteria apply. See the IRS guidance and press release.
Insulation and roofs
  • Insulation must meet the 2001 or 2004 International Energy Conservation Code.
  • Roofs must be metal roofs with pigmented coatings or asphalt roofs with cooling granules that meet ENERGY STAR requirements.
  • Insulation must meet the 2009 International Energy Conservation Code.
  • Roofs must be metal roofs with pigmented coatings or asphalt roofs with cooling granules that meet ENERGY STAR requirements.
Required insulation levels will vary by region and will include insulation that is already installed in your home.
Central AC and heat pumps
  • Central AC must meet the highest efficiency tier set by the Consortium for Energy Efficiency for 2006- seasonal energy efficiency ratio (SEER) of at least 15 and an energy efficiency ratio (EER) of at least 12.5 for most air conditioners.
  • Electric heat pumps must be SEER of at least 15 and an EER of at least 13 and must have a heating seasonal performance factor (HSPF) of at least 9.
  • Central AC must meet the highest efficiency tier set by the Consortium for Energy Efficiency for 2009- SEER of at least 16 and an EER of at least 13 for most air conditioners.
  • Electric heat pumps must meet the highest efficiency tier set by the Consortium for Energy Efficiency for 2009- SEER of at least 15, an EER of at least 12.5, and an HSPF of at least 8.5.
This is about 15-25 percent more efficient than the federal standard that went into effect in January 2006.
Furnaces and Boilers
  • Natural gas, propane, or oil furnaces and boilers must have at least a 95 percent annual fuel utilization efficiency (AFUE)
  • Natural gas or propane furnaces must have at least a 95 percent AFUE
  • Oil furnaces must have at least a 90 percent AFUE
  • Natural gas, propane, or oil boilers must have at least a 90 percent AFUE
Water heaters
  • Electric heat pump water heaters must have an Energy Factor (EF) of 2.0.
  • Natural gas, propane, or oil water heaters must have an EF of at least .80 or a thermal efficiency rating of at least 90%.
  • Electric heat pump water heaters must have an EF of 2.0.
  • Natural gas, propane, or oil water heaters must have an EF of at least .82 or a thermal efficiency rating of at least 90%.
  • This is more than twice as efficient as the current federal standard. There is no credit for other kinds of electric water heaters.
  • Only some tankless water heaters and “condensing” or other advanced water heaters currently reach this efficiency level.
Biomass stoves
  • Biomass stoves for space or water heating can run on crops, wood, plants, etc., but must have a thermal efficiency rating of at least 75%.
  • Biomass stoves for space or water heating can run on crops, wood, plants, etc., but must have a thermal efficiency rating using a lower heating value of at least 75%.

If you don’t meet any of these categories, you may still be able to get some money back.  Check out the The American Council for an Energy-Efficient Economy’s (ACEEE) chart summarizing the various 2009 energy-star rebates, credits on hybrid vehicles, and other green tax incentives.  And, remember, states, utilities, and the Energy Star partners may have their own programs that incentivize energy efficiency and energy renewables.  Energy Star can generate special offers and rebates from its partners when you plug in your zip code here.  Finally, the Database of State Incentives for Renewables and Efficiency can provide you with helpful information about green tax incentives in your state.

Posted by Krystyna on April 14, 2010 at 3:44pm.

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