Green Payoff

The massive economic stimulus package provides hefty financial incentives for going green in 2009 and 2010. So, in addition to saving on water and energy bills and reducing your carbon footprint, you’ll be able to use tax credits to make such upgrades more affordable.?
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“The new tax credit also aligns with industry research indicating that even the most aggressive efficiency goals for new homes won’t make a dent in overall energy consumption,” says National Association of Home Builders (NAHB) Remodelers Chairman Greg Miedema, a remodeler from Tucson, Ariz. “Instead, remodeling and retrofitting the nation’s older homes is by far the more efficient solution.”

A 2008 California study revealed that 70 percent of the greenhouse gas emissions related to single-family envelope energy consumption can be attributed to homes built before 1983.

The study, conducted by the California Homebuilding Foundation, found that spending $10,000 retrofitting a 1960s home would save 8.5 tons of carbon. Increasing the energy efficiency of a new home by 35 percent would cost about $5,000 and reduce emissions by only 1.1 tons.

The bottom line: 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 homes, the study showed.

But weren’t there already tax incentives for green remodeling? Yes, but they weren’t as generous as the new incentives.

The Internal Revenue Code section 25C tax credit 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. Under that program, homeowners could be rewarded for installing energy-efficient windows, doors, roofing and insulation as well as furnaces, air conditioners and heat pumps.

But remodelers found that the terms of the 25C credit—equal to only 10 percent of the cost of each product and with a lifetime cap of $500—weren’t making an impression or spurring activity.

Now, the credit rate and lifetime cap have been tripled—to 30 percent and $1,500, respectively—the list of eligible improvements expanded and the deadline for applying has been extended through the end of 2010.

For example, geothermal heat pumps, solar panels and solar hot water heaters are now included in the 30 percent tax credit and there is no cap on their cost through 2016. These credits also apply to new construction as well.

Congressional estimates indicate that the new rules for the tax incentive will increase aggregate remodeling activity by more than $6 billion.

Details on qualifying improvements will soon be available at the IRS Web site, www.irs.gov. It’s expected that homeowners will need to complete Form 5695 (Residential Energy Credits) and submit it as part of their 2009 income tax returns to claim the credit.

“I think it will help a little bit,” says Nathan Cross, president of NWC Construction, who does extensive remodeling projects. A drawback, he adds, is that some products—particularly many brands of windows—don’t qualify for the tax credit under the government’s new, more stringent standards.

“As we get more choices, it will be easier to talk to homeowners about the idea,” Cross notes.

But Cross points out that local power companies also offer incentives for energy efficient renovations. Progress Energy, for one, offers a $400 rebate to homeowners whose projects are Energy Star-certified.

Jack Machise, owner of JLM Design and Remodeling, is also cautiously optimistic about the potential for expanded tax credits to boost the remodeling industry.

“I hope it does,” Machise says. “People will replace things as they need it, though. It may not force business.”

Jim Richards, vice president of the Residential Replacement Division of Air Flow Designs, says he sees the new tax credits “absolutely” helping the industry—especially when it comes to the HVAC side of the equation.

“From the customers’ perspective, it allows them to buy a more efficient system,” Richards notes. “It’s a win for the homeowner and a win for the contractor.” He notes that a homeowner now can purchase a $6,500 HVAC system for only $5,000 thanks to $1,500 in tax credits.

“These aren’t tax deductions,” Richards adds. “This is money you will get back.”

Beyond tax credits for consumers, Home Builders Assoc-iation of Metro Orlando" target=_blank>Orlando (HBA) Executive Director Beth McGee says that small business assistance provisions in the economic stimulus package will help remodelers.

The U.S. Small Business Administration (SBA) now guarantees up to 90 percent of loans, up from 75 to 85 percent. The idea is to encourage more SBA loans since there is more protection from defaults.

What’s Covered by the Tax Credit
In 2009 and 2010, tax credits of 30 percent of the cost—up to $1,500—are available for the following energy-efficient improvements to existing homes only:
> Windows and doors.
> Insulation.
> Roofs (metal and asphalt).
> Heating, ventilating and air-conditioning.
> Water heaters (non solar).
> Biomass stoves.
Through 2016, tax credits are available of 30 percent of the cost—with no upper limit—for the following energy-efficient? improvements to new homes and existing homes:
> Geothermal heat pumps.
> Solar panels.
> Solar water heaters.
> Small wind energy systems.
> Fuel cells.
Find out more on the Web at www.energystar.gov/taxcredits.