As a result of federal legislation, there a multitude of tax breaks available for residential and commercial renovation and construction projects completed this year and in some cases continuing to 2016. Below I have provided briefings on the tax credits available to homeowners, builders and the tax deductions available to commercial building owners/designers. This post focuses on federal incentives, but many states also offer incentives for renewables and energy efficiency; details can be found at http://www.dsireusa.org/.
There are three categories of improvements homeowners can make with different benefits and timelines: 1) Energy efficiency – replacing/installing qualified windows/doors, insulation, roofs, HVAC, water heaters and biomass stoves can result in a tax credit at 30% of the cost up to $1,500 in 2009 and 2010. 2) Renewable energy – geothermal heat pumps, solar panels, solar water heaters, small wind energy systems and fuel cells qualify for tax credits of 30% of the cost with upper limit on the amount through 2016. 3) Cars – $2,500-$7,500 credit for plug-in hybrids (up to 250,000 vehicles) and a tax credit amount based on an efficiency formula for hybrid gas-electric, diesel, battery-electric, alternative fuel and fuel cell vehicles (60,000 vehicle limit per manufacturer so Toyota and Honda have been phased out but it is available for Ford, GM and Nissan).
Given the limitation in category 1, homeowners should choose improvements wisely to maximize the monetary benefits. Generally speaking, adding attic and wall insulation and sealing air leaks provide the most bang for your buck (particularly in colder climates); each can generally be installed for several hundred dollars and each can provide over $200 in annual savings (again, best results in colder climates). The table below taken from the Energy Star website provides a summary of the tax credit details and requirements (I left out the “Notes” column).
1Subject to a $1,500 maximum per homeowner for all improvements combined.
Home builders can receive a $2,000 tax credit for each new energy efficient home that achieves 50% energy savings for heating and cooling over the 2004 International Energy Conservation Code (IECC) and supplements. The homes must be completed and sold by December 31, 2009. For manufactured homes the credit is $1,000 to the producer and the home must achieve 30% energy savings for heating and cooling over the 2004 IECC and supplements, or the home must meet the requirements established by EPA under the ENERGY STAR program. For more details, see here.
According to Energy Star, “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 tax deductions are available for systems “placed in service” from January 1, 2006 through December 31, 2013.” The link above provides information on calculations, IRS guidance, etc.
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