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Musings of an Energy Nerd

Deciphering the Tax Credits

Make sure you understand the tax credit rules before contracting for energy-efficiency improvements

A tax credit for caulk and canned foam. Homeowners can claim a tax credit for 30% of the cost of caulk and spray foam used to air seal an existing house. Unfortunately, no tax credit is available for the cost of the labor associated with air-sealing work.
Image Credit: Martin Holladay

The energy-efficiency tax credits and renewable-energy tax credits are better than tax deductions. The allowable credits aren’t just deductible expenses; they represent dollars subtracted directly from your tax bill. While the tax credit program includes illogical rules, the available tax credits can be significant.

If you want to claim a tax credit on your 2009 income tax return for energy-efficiency improvements to your home, you should get the improvements installed before the end of the year. There’s really no need to rush, however, since the tax credits will remain available until the end of 2010 — or, in some cases, 2016.

Energy-Efficiency Credits

The energy-efficiency tax credits are available for air-sealing products, insulation, HVAC equipment, water heaters, windows, doors, and roofing. These tax credits were established on February 17, 2009 by the American Recovery and Reinvestment Act — President Obama’s stimulus bill.

The following rules apply to the energy-efficiency tax credits:

  • The credits are available to homeowners.
  • The credits apply to improvements made to an existing home; new homes are not eligible. The home must be the taxpayer’s primary residence, not a vacation home or rental property.
  • The value of the credit is 30% of the cost of the installed materials. For some but not all categories of materials, a credit can also be claimed for 30% of the cost of the installation labor.
  • The maximum tax credit available is $1,500 per homeowner; this cap is the combined total of all energy-efficiency tax credits claimed in 2009 and 2010. For example, if you claim a $1,000 credit for a furnace and a $500 credit for windows, you’ve maxed out your available credits.
  • The credit is set to expire on December 21, 2010.

No tax credits are available for energy-efficiency improvements made in 2008. An earlier tax credit program (with different criteria) was available in 2006 and 2007; tax credits received for…

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  1. Doug | | #1

    BPI auditors are pretty good too
    Martin, excellent post as usual. Hopefully you are one of the adults in the room next time around!
    Incidentally, there was a funny article in Window & Door magazine in which the reporters tried to figure out where the 30/30 window requirements came from. As you are probably aware, besides being completely wrong for the entire northern tier of the US, very few manufacturers could even produce such units when the policy was announced! Window & Door couldn't even find a 'smoking lobbyist' who had engineered the wacky policy to benefit their employer.
    I wanted to mention that at least in the mid-Atlantic, RESNET raters are often only familiar with new home construction, and a better choice for retrofit audits (on existing houses) are Building Performance Institute-certified auditors. The BPI training specifically covers combustion safety & efficiency, which I view as a must-do procedure on a house with atmospherically-vented heaters. BPI training also does more on finding & evaluating existing house issues. RESNET auditors in our area usually lack these skills, though to be fair they tend to be better at modeling the energy use of a house, a weak spot in BPI's current training.
    At the end of the day, an experienced, knowledgeable person can do a decent job with either system, but around here you would be remiss not to at least include BPI trained auditors in your recommendation, and I would argue that a RESNET auditor who doesn't do combustion safety analysis is not giving you a complete job.

  2. GBA Editor
    Martin Holladay | | #2

    BPI-trained auditors
    Thanks for making an important point. The Building Performance Institute (BPI) does an excellent job of training energy auditors, and I should have mentioned them.

    Concerning the other issue you raised: Most attempts to assign blame for the 30/30 window criteria disaster have fingered Senator Olympia Snowe of Maine or her legislative aide, Patrick Woodcock. According to this article, Woodcock explained that "the final decisions regarding this [the 30/30 criteria] were made rather quickly at 3 o’clock in the morning as the legislation had to be finalized."

  3. user-706956 | | #3

    what about the delivery system?
    A client would like to know - One thing that still seems uncertain reading this is
    whether the ducting/radiant-piping to allow the heat pump to heat the
    house is included in the tax credit?

  4. GBA Editor
    Martin Holladay | | #4

    Heat pump tax credit
    The tax credit for air-source heat pumps applies to existing homes, not new homes. The tax credit can be claimed when a new heat pump is installed to replace an older model. As far as I can tell, the cost of the heat distribution system (under-floor tubing, baseboard radiators, or ductwork) is not eligible. In any case, these elements of a heating system are usually not changed when a heat pump is replaced.

    The tax credit for ground-source heat pumps is a different program -- the renewable energy tax credit program. That program allows tax credits for new construction. I'm not sure if the distribution system is eligible -- I'll look into it.

  5. GBA Editor
    Martin Holladay | | #5

    More on ground-source heat pumps
    It appears that to be eligible for a tax credit, a ground-source heat pump must use ducts to distribute the heat, not in-floor radiant tubing. Here's the relevant information:
    "Currently, water-to-water geothermal heat pumps can not qualify for the tax credit, because the law requires geothermal heat pumps to be ENERGY STAR qualified for the tax credit. Water-to-water units are not currently able to earn the ENERGY STAR. However, it's likely they will be eligible for both ENERGY STAR and the tax credit starting in December 2009.

    EPA is in the process of revising the ENERGY STAR geothermal heat pump specification. Water-to-water geothermal heat pumps are included in the draft specification. If water-to-water models are included in the final specification, then the effective date for ENERGY STAR water-to-water geothermal heat pumps and tax credit eligibility will be the date this new specification is final."

    I'm still trying to find out whether ductwork and air handlers are eligible for the ground-source heat pump tax credit. My instincts say they are not, but I haven't found the answer in black and white yet.

  6. GBA Editor
    Martin Holladay | | #6

    Even the Energy Star Web site is vague
    Okay, here's as close as I have come to an answer — and it's a vague answer that includes the word "may."

    According to the Energy Star Web site:
    "The majority of the geothermal heat pump property and its installation is covered by the 30% tax credit. All geothermal heat pump components certified by the manufacturer in the "Manufacturer Certification Statement" will be covered. There may be some add on components that will not be covered such as an emergency back up system and the ducts. These components are not directly related to the efficiency of the covered geothermal heat pump property.

    "IRS Guidance: Notice 2009-41 Section 3. (1)(e) Qualified geothermal heat pump property expenditures are expenditures for equipment which uses the ground or ground water as a thermal energy source to heat the dwelling unit or as a thermal energy sink to cool the dwelling unit, meets the requirements of the Energy Star program which are in effect at the time that the expenditure for such equipment is actually made (even if under § 25D(e)(8) the expenditure is deemed made at a later time for purposes of determining the taxable year for which a taxpayer may claim the credit), and is installed on or in connection with a qualifying dwelling unit."

  7. Paddy | | #7

    UPVC Windows and rebates
    Martin. This is the first time I have read any of your posts. I am impressed. This is easy to read and process. I have been concerned that the detail was not clear in other publications that I have read. As you and other writers have stated' even the formal advice is vague. I am not sure how the average family can make sense of the rebates. I would be surprised if there were not many families who have opted not to claim. It has been my experience that wholesalers and retailers are struggling to understand who is eligible for what. I will be informing my colleagues and friends of your postings.

    I do have one question! Are you able to tell me if there are rebates for specific window treatments, such as uPVC Windows, triple glazing, frameless windows. Can they be retrofitted or is it for new homes only.

  8. GBA Editor
    Martin Holladay | | #8

    The tax credit for widows is a homeowner tax credit for replacement windows. I'm not sure what you mean by "frameless windows"; if you mean windows without nailing fins, they can qualify. To be eligible for the tax credit, windows installed after June 1, 2009 must be NFRC-rated, and must have a maximum U-factor of 0.30 and a maximum solar heat gain coefficient (SHGC) of 0.30.

  9. Michael Schwartz | | #9

    Getting certified
    For homeowners who want to know more about conserving energy, I would recommend getting their BPI Certification. It's pretty cool that anybody with a passion for conservation can become certified being that there are no prerequisites.

  10. Anonymous | | #10

    If your taxes are too low or
    If your taxes are too low or you don't pay taxes, you are not eligible to the 30% back! So the people who really need the help don't get it! I saved all summer to get my 6 Marvin windows and nope, I won't get the 30% back!

  11. Double Glazing | | #11

    Being energy efficient is your best investment for your later life. Find solutions like the ones stated in here and put them into practice. Sooner or later you'll find your electric bills going down and your body being healthier, knowing that you can now invest more fore your self.

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