Federal Tax Credits for Residential Energy Efficiency

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Federal Tax Credits for Residential Energy Efficiency
The Internal Revenue Service (IRS) will develop the final rules and forms to clarify which products and services qualify for the tax credits. We will link to this information as soon as it is available. Please note, not all homes, appliances, and products with the ENERGY STAR label qualify for a tax credit. You must refer to the final IRS rules to determine what qualifies for the tax credit.

The Energy Policy Act of 2005 was signed into law by the President on August 8, 2005. It includes:
Tax Credits for HomeownersTax Credits for Home Builders
Tax Credits for Appliance Manufacturers
Tax Credits for Commercial Buildings

Tax Credits for Homeowners:
There are different levels of credit depending on the type of improvement made, but the maximum amount of homeowner credit for all improvements combined cannot exceed $500 during the two year period of the tax credit. This tax credit applies to improvements made from January 1, 2006 through December 31, 2007.

Eligible measures are:

Added insulation to walls, ceilings, or other part of the building envelope
Replacement windows
High-efficiency gas, oil, and propane furnaces and boilers
High-efficiency central air conditioning units, including air-source and ground-source heat pumps
High-efficiency fans for heating and cooling systems
High-efficiency water heaters, including heat pump water heaters

Incentive amounts are:

Added insulation: 10% of cost up to $500
Replacement windows: 10% of cost up to $200
Furnaces and boilers: $150 for qualifying units
Central air conditioning units: $300 for qualifying units
Fans for heating and cooling systems: $50 for qualifying units
Water heaters: $300 for qualifying units

ENERGY POLICY ACT OF 2005
DRAFT SUMMARY OF TAX CREDITS FOR HOMEOWNERS�
(US Treasury has not yet provided final interpretation for IRS use)
Product Category Product Type Tax Credit Specification Tax Credit ENERGY STAR Specification
Windows Exterior Windows Meet 2000 IECC & Amendments 10% of cost not to exceed $200 total Climate dependant - 4 Zones
Skylights Meet 2000 IECC & Amendments 10% of cost not to exceed $200 total Climate dependant - 4 Zones
Exterior Doors Meet 2000 IECC & Amendments 10% of cost not to exceed $500 Climate dependant - 4 Zones
Roofing Metal Roofs ENERGY STAR qualified 10% of cost not to exceed $500 Minimum Solar Reflectance
Insulation Insulation Meet 2000 IECC & Amendments 10% of cost not to exceed $500 Meets FTCs "home insulation" definition
HVAC Central A/C EER 12.5/SEER 15 Split Systems
EER 12/SEER 14 Package systems $300
EER 11.5/ SEER 14 Split systems
EER 11/SEER 14 Package systems
Air Source Heat Pumps HSPF 9 EER 13 SEER 15 $300 HSPF 8.2 EER 11.5 SEER 14 Split
HSPF 8 EER 11 SEER 14 Package
Geo-Thermal Heat Pump EER 14.1 COP 3.3 Closed Loop
EER 16.2 COP 3.6 Open Loop
EER 15 COP 3.5 Direct Expansion $300 EER 14.1 COP 3.3 Closed Loop
EER 16.2 COP 3.6 Open Loop
EER 15 COP 3.5 Direct Expansion
Gas, Oil, Propane Water Heater Energy Factor 0.80 N/A
Electric Heat Pump Water Heater Energy Factor 2.0 N/A
Gas, Oil, Propane Furnace or Hot Water Boiler AFUE 95 $150 AFUE 90 for furnaces
AFUE 85 for boilers
Advanced Main Air Circulating Fan No more than 2% of furnace total energy use $50 N/A

� For calendar years 2006 and 2007 only.

Other Tax Credits for Homeowners:
In addition to these homeowner tax credits, a separate tax credit for solar hot water systems is available. These credits are not limited to the $500 cap. Consumers can earn a tax credit of up to 30% of the cost ($2,000 max lifetime) for installing PV or solar hot-water systems used exclusively for purposes other than heating swimming pools and hot tubs. The system must use solar power to provide at least half of a home's hot water. In addition, the water must be used in the dwelling and the system must be certified by the Solar Rating and Certification Corporation (SRCC). There is also a consumer tax credit of up to 30% of the cost (up to $500 per 0.5 kW of capacity maximum) for installing a "qualified" fuel cell unit. The credits are available for 2006, 2007, and 2008.

Tax Credits for Home Builders:
Home builders are eligible for a $2,000 tax credit for a new energy efficient home that achieves 50 percent energy savings for heating and cooling over the 2004 International Energy Conservation Code (IECC) and supplements. At least 1/5 of the energy savings must come from building envelope improvements. This credit also applies to contractors of manufactured homes conforming to Federal Manufactured Home Construction and Safety Standards.

There is also a $1,000 tax credit to the producer of a new manufactured home achieving 30 percent energy savings for heating and cooling over the 2004 IECC and supplements (at least 1/3 of the savings must come from building envelope improvements), or a manufactured home meeting the requirements established by EPA under the ENERGY STAR program.

These tax credits apply to qualified new homes built or produced 1/1/2006 through 12/31/2007.

Tax Credits for Appliance Manufacturers:
While not directly affecting consumers, manufacturers of energy efficient clothes washers, dishwashers and refrigerators are eligible for tax breaks themselves, which may lead to increased availability and a reduction in prices for these energy-saving appliances:

Clothes Washers - $100 for each model manufactured that meets 2007 ENERGY STAR criteria
Dishwashers - The credit will be based on a formula, that depends on the 2007 ENERGY STAR criteria. This criteria will be set by the end of 2005. The incentive will likely be somewhere around $30 per qualifying dishwasher.
Refrigerators - have three tiers of incentives:
$75 for models that save 15%-19% relative to 2001 federal standards, which is equal to the current ENERGY STAR criteria (2006 only)
$125 for models that save 20%-24% relative to 2001 federal standards
$175 for models that save 25% or more relative to 2001 federal standards

Each manufacturer is limited to a total of $75 million for all credits under this provision. In addition, no more than $20 million can be claimed for refrigerators saving 15%-19% based on the 2001 federal standard.

Tax Credits for Commercial Buildings:
A tax deduction of up to $1.80 per square foot is available to owners or designers of new or existing commercial buildings that save at least 50% of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001. Partial deductions of up to $.60 per square foot can be taken for measures affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems. These deductions are available for buildings or systems placed in service from January 1, 2006, through December 31, 2007.






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