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Energy Solutions

Tax Credits for Energy Upgrades

Benefiting from the 30% federal tax credit for energy improvements

There are some great opportunities right now to upgrade your home energy performance with support from federal tax credits. These tax credits, created as part of the American Recovery and Reinvestment Act of 2009 greatly expanded tax credits that had been put in place through the Energy Policy Act of 2005 (EPAct). Over the next few weeks I’ll describe these tax credits–addressing what they cover and how you can benefit–but also editorializing a bit about some of the poorly thought-out features.

A 30% federal tax credit with a cap of $1,500 is available for 2009 and 2010 for six broad energy conservation measures and equipment purchases. This tax credit is available only for existing homes that serve as principal residences, and the $1,500 is a total figure that can be spread over multiple energy improvements, but can’t be exceeded. This group of tax credits is described briefly below, and a number of them will be covered in greater detail in future columns.

For certain renewable energy systems and ground-source heat pumps, a 30% federal tax credit with no upper limit is also available through the end of 2016. These will also be addressed in future columns.

Biomass stoves. Any wood stove, pellet stove, or other stove that burns agricultural products or fuels made from biomass, and that has an efficiency of at least 75%, is eligible for this tax credit. The 30% tax credit is based on the total cost, including installation. In researching biomass stoves, ask the dealer or look online for the signed “Manufacturer’s Certification Statement” declaring that a particular stove complies with the efficiency requirement. The stove must be installed by December 31, 2010.

HVAC equipment. High-efficiency gas- and oil-fired furnaces and boilers, air-source heat pumps, and central air conditioners all can earn this 30% tax credit. Installation is included in the covered cost. The minimum energy performance requirements vary by product type and are listed below (AFUE, HSPF, EER, and SEER are specialized measures of efficiency or energy performance that relate to certain types of equipment):

• Natural gas or propane furnace: AFUE ≥ 95%

• Oil furnace: AFUE ≥ 90%

• Natural gas, propane, or oil boiler: AFUE ≥ 90%

• Air-source heat pump (split system): HSPF ≥ 8.5; EER ≥12.5; SEER ≥ 15

• Air-source heat pump (packaged system): HSPF ≥ 8.; EER ≥12; SEER ≥ 14

• Central air conditioner (split system): SEER ≥ 16; EER ≥ 13

• Central air conditioner (packaged system): SEER ≥ 14; EER ≥ 12

Water heaters (non-solar). Natural gas, propane, and oil water heaters can earn the 30% tax credit as long as the Energy Factor is at least 0.82 or the thermal efficiency (a measure of peak efficiency, not factoring in stand-by and on-off cycling losses) is at least 90%. With electric water heaters, the Energy Factor has to be at least 2.0, a performance level that only heat-pump water heaters can achieve. The tax credit is based on total cost, including installation.

Insulation and air-sealing products. Any type of insulation can earn this tax credit, including batts, rolls, loose-fill or blow-in fiberglass, cellulose, rigid board, spray-foam, and pour-in place. Also covered in this category is weatherstripping, spray foam sealant, caulk for air-sealing, and housewrap (such as Tyvek or Typar). Only the material cost is covered, not installation.

Reflective roofing. To earn the 30% tax credit, roofing must meet the Energy Star requirements for reflective roofing, and only certain materials comply. Covered materials include metal roofing with pigmented coatings and asphalt shingles or “modified bitumen” with light-colored granules that meet the reflectivity requirements (information available on the Energy Star website). You must include a “Manufacturer Certification Statement” declaring that the roofing meets the Energy Star requirements. Only the roofing cost is covered, not installation.

Windows and Doors. Windows, including skylights, can earn the 30% tax credit as long as the U-factor and the solar heat gain coefficient (SHGC) are both 0.30 or lower. U-factor is a measure of heat flow through a window; it accounts for window edges and frames as well as the glass; U-factor is the inverse of R-value, so a U-factor of 0.30 equals an R-value of 3.3. The SHGC is a measure of the total solar energy transmitted through a window; the credit can only be obtained for windows that block out most of the solar gain (at least 70%). Next week I’ll address why this “one-size-fits-all” requirement is a bad idea. Doors must meet the same performance requirements. With both windows and doors, only the product cost is covered, not installation.

To obtain any of these credits, homeowners have to use IRS form 5695. Consult with your accountant or tax attorney for specific information on compliance; information provided here is for general guidance only.

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  1. Doug McEvers | | #1

    Tax Credits
    We took advantage of the 2005 Epact credit I believe it was called when we upgraded ceiling insulation from R-38 to R-100 and installed a 95% ECM motor forced air furnace. The credit was less than this one but along with some utility rebates I calculated an ROI of about 10% and this included the new furnace. Basement wall insulation and attic air sealing was also part of the package, our gas heating bill was reduced by about 45% and the comfort level is better than most new homes. I highly encourage folks to take advantage of this program.

  2. Anonymous | | #2

    HVAC Improvement
    We just sent in our tax materials associated with our tax credit for $12k in high-efficiency HVAC improvements. Winter was rough so we didn't see a big benefit in energy costs, but the house is clearly more temp appropriate since the changes. Also did some work with a Green Home Consultant in Bethesda, MD. ( The foamed every last airy inch of our 1935 basement. Last, we signed up for scheduled air filter replacement so that we don't let this's workign great. We used Very cool concept.

  3. Sprite | | #3

    Geo-thermal Rebates
    Don't forget that geo-thermal heat pumps qualify for a 30% tax incentive with no cap until 2016.

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