Home Improvement Energy Tax Credits Explained

Transcription

1 Home Improvement Energy Tax Credits Explained Your Local Home Improvement Specialist WHITE PAPER

2 Through The Emergency Economic Stabilization Act of 2008 (the Bailout Bill ) and The American Recovery and Reinvestment Act of 2009 ( Stimulus Package ) the federal government is making a significant investment in reducing energy use in the nation s housing stock. The 2008 Act expanded and extended residential renewable energy tax credits while the 2009 Act added a tax credit provision for energy efficiency upgrades. When taken together, these two Acts are making it much easier for consumers to both reduce household energy use and switch heating and electrical systems over to renewable energy. The term, tax credit is often confused with tax deduction. A tax deduction is a line item like the personal exemption which results in a reduction in taxable income. For example, someone reporting $40,000 as income can deduct the personal exemption of $3,650 from income resulting in a taxable income of $36,350. This person would be in the 25% tax bracket so the personal exemption of $3,650 only results in an actual savings of $ (25% of $3,650). On the other hand, a tax credit is a reduction in taxes owed. For example, if someone puts in a solar hot water system which resulted in a tax credit of $3,650, his tax bill would be reduced by the same $3,650 making tax credits significantly more effective than deductions in reducing tax liability. The Energy Tax Credits encompass three categories: Building Envelope Components, HVAC Systems and Renewable Energy. The products under building envelope components and HVAC are considered energy efficient upgrades. These products have a tax credit cap of $1,500 total for improvements between January 1, 2009 and December 31, Therefore, you can only claim a tax credit for up to $5,000 worth of work in 2009 and The $1,500 tax credit cap is for both 2009 and 2010 tax years combined, so if you claim all $1,500 ($5,000 in work) in 2009 then you cannot file for the tax credit in However, if you only apply for a $900 ($3,000 worth of work) tax credit in 2009 then you could claim a $600 credit ($2,000 worth of work) in 2010 if needed.

3 TABLE OF CONTENTS Building Envelope Components Overview of Tax Credits page 2 Windows page 4 Doors page 5 Roofing page 5 Insulation page 5 HVAC Overview page 6 Central Air Conditioner page 7 Furnaces & Hot Water Heater page 7 Air Source Heat Pumps page 7 Water Heaters page 8 Biomass Stoves page 8 Renewable Energy Overview page 9 Geothermal Heat Pumps page 9 Claiming the Tax Credit page 10 Solar Water Heaters page 10 PV Solar Panels page 11 Small Wind Turbines page 12 HOME IMPROVEMENT ENERGY TAX CREDITS EXPLAINED WHITE PAPER 3

4 Building Envelope Components The building envelope components include windows, skylights, doors, roofing and insulation. BUILDING ENVELOPE COMPONENTS KEY TERMS U-Factor measures the rate heat is lost through the window and/or door. The lower the number, the more insulated and energy efficient the product. A customary range is between 0.20 and Solar Heat Gain Coefficient (SHGC) measures how much heat from the sunlight is emitted and absorbed by the window and/or door. The lower the number, the more heat resistant and energy efficient the product. The SHGC values range between 0 and 1. Visible Transmittance (VT) measures how much light is transmitted through the window and/or door. The higher the number, the more light comes through the product. The VT values range between 0 and 1. Air Leakage (AL) measures how much air seeps through the gaps and seams in the window and/or door. The higher the number, the more air is escaping and the less energy efficient the product. While it is important to know how the terms above affect the quality and performance of the building envelope components, the only values pertinent to The Energy Tax Credits are the U-factor and SHGC value. It is estimated that over 30% of the home s energy escapes through the doors and windows. Upgrading to more energy efficient products can help keep your home cooler in the summer and warmer in winter, while saving you money on your utility bills. Below is a guide which easily explains the criteria each product must meet in order to qualify for The Energy Tax Credits. Windows and Skylights National Tax Credit Amount: 30% of the product s cost up to $1,500. Labor and installation costs cannot be included. The tax credit cannot be allocated towards a future tax year. Criteria for National Tax Credit: The windows must be on an existing primary residence home, as rental property and new construction do not qualify for the credit. The windows must have a U-Factor of 0.30 or less and SHGC of 0.30 or less. Storm windows must comply with IECC default U-factor between it and the window over which it is installed. Timeline: The tax credit does not correlate to the date the windows and skylights are purchased, but rather the date they are placed in service. The windows must be installed between the dates of January 1, 2009 and December 31, MOONWORKS QUALIFIED PRODUCT: RENEWAL BY ANDERSEN WINDOWS 4

5 Roofing Doors National Tax Credit Amount: 30% of the product s cost up to $1,500. Labor and installation costs cannot be included. The tax credit cannot be allocated towards a future tax year. Criteria for National Tax Credit: The doors must be on an existing primary residence home, as rental property and new construction do not qualify for the credit. The doors must have a U-Factor of 0.30 or less and SHGC of 0.30 or less. Storm doors must comply with IECC default U-factor in combination with primary door. Timeline: The tax credit does not correlate to the date the doors are purchased, but rather the date they are placed in service. The doors must be installed between the dates of January 1, 2009 and December 31, MOONWORKS QUALIFIED PRODUCTS: RENEWAL BY ANDERSEN, PROVIA & THERMATRU National Tax Credit Amount: 30% of the product s cost up to $1,500. Labor and installation costs cannot be included. The tax credit cannot be allocated towards a future tax year. Criteria for National Tax Credit: The roof must be on an existing primary residence home, as rental property and new construction do not qualify for the credit. The metal and asphalt used must meet Energy Star requirements; the metal roofs must have a pigmented coating and asphalt roofs must have cooling granules. Timeline: In order to receive the tax credit, the completed roof must be installed between the dates of January 1, 2009 and December 31, MOONWORKS QUALIFIED PRODUCTS: SOLARIS BY CERTAINTEED & COOL COLORS BY GAF ELK TM Insulation National Tax Credit Amount: 30% of the product s cost up to $1,500. Labor and installation costs cannot be included. The tax credit cannot be allocated towards a future tax year. Criteria for National Tax Credit: The insulation must be on an existing primary residence home, as rental property and new construction do not qualify for the credit. The insulation must meet 2009 IECC & Amendments and lifespan of at least 5 years or have a two-year warranty. Timeline: In order to receive the tax credit, the insulation must be completely installed between the dates of January 1, 2009 and December 31, MOONWORKS QUALIFIED PRODUCTS: FIBERGLASS AND CELLULOSE BLOWN-IN INSULATION HOME IMPROVEMENT ENERGY TAX CREDITS EXPLAINED WHITE PAPER 5

6 Heating, Ventalation & Air Conditioning (HVAC) Systems Unlike windows and doors, the current average rating for the items below are less cut and dry because they are dependent on a variety of factors that are constantly changing- climate, usage, etc. Below are some important terms that relate to measuring the efficiency of HVAC products. HVAC KEY TERMS Energy Efficiency Rating (EER) measures how efficient the air conditioner or heat pump is during the cooling process, which is provided in British thermal units (BTU). The EER uses the following assumptions in the equation: an outdoor temperature of 95 degrees Fahrenheit and an indoor temperature of 80 degrees Fahrenheit. EER ultimately determines how efficient the product is during peak day operations. Seasonal Energy Efficiency Rating (SEER) measures in BTU how efficient the air conditioner or heat pump is during the cooling process over a specific period of time (or season). To figure out the efficiency divide the BTU usage by electricity usage of a given period of time, this is measured in watt-hour. [SEER = BTU / Watt-Hours of Electricity]. SEER ultimately determines how efficient the product is over a given season. So, an air conditioner with a SEER of 10 makes 10 BTU/hour of cooling per watt of electricity. As of January 2006, all manufactured air conditioners must have a SEER of at least 13. Heating Seasonal Performance Factor (HSPF) measures how efficient the heat pump is during the heating process. The higher the number, the more efficient the product. To calculate the HSPF, divide the annual heating usage by the electrical usage. Therefore, a heating pump with a HSPF of 10 makes 10 BTU/hour of heat per watt of electricity. Average Fuel Utilization Efficiency (AFUE) measures the efficiency percentage of fuel used vs. fuel wasted for gas and oil-fired furnaces. The higher the number, the more efficient the furnace. Therefore, if the furnace has an AFUE rating of 85% then 15% of the energy is escaping through the chimney. Using the key terms above will allow you to successfully implement the changes necessary to make your home more energy efficient. Upgrading even one feature can save you money each month on your utilities. The following is a guide which easily explains the criteria each product must meet in order to qualify for The Energy Tax Credits. 6

7 Central Air Conditioners National Tax Credit Amount: 30% of the product s cost up to $1,500. Labor and installation costs can be included if the labor costs are directly related to the onsite preparation, assembly or original installation of the central air. The tax credit cannot be allocated towards a future tax year. Criteria for National Tax Credit: The central air must be on an existing primary residence home, as rental property and new construction do not qualify for the credit. For split systems, the HSPF must be 13 or greater with a SEER of 16 or greater. For package systems, the HSPF must be 12 or greater with a SEER of 14 or greater. Timeline: The tax credit does not correlate to the date the central air conditioner is purchased, but rather the date it is placed in service. The central air must be installed and in working condition between January 1, 2009 and December 31, Furnaces and Hot Water Boilers National Tax Credit Amount: 30% of the product s cost up to $1,500. Labor and installation costs can be included if the labor costs are directly related to the onsite preparation, assembly or original installation of the furnace and/or boiler. The tax credit cannot be allocated towards a future tax year. Criteria for National Tax Credit: The boiler and furnace must be on an existing primary residence home, as rental property and new construction do not qualify for the credit. For natural gas or propane furnaces, the AFUE must be 95 or greater. The oil furnaces must have an AFUE of 90 or greater. Hot water boilers (gas, propane and oil) must have an AFUE of 90 or greater. Timeline: The tax credit does not correlate to the date the furnace or boiler is purchased, but rather the date it is placed in service. The furnace and/or boiler must be installed and in working condition between January 1, 2009 and December 31, Air Source Heat Pumps Air Source Heat Pumps are the energy efficient alternative to a furnace or air conditioner. The pump moves air from your house to the outdoors during the cooling season and vice versa during the heating season. Moving heat, rather than generating it like a furnace or air conditioner, allows the heat pump to be 4 times more efficient. Please note these air source heat pumps are ideally suited to areas with temperate climates. National Tax Credit Amount: 30% of the product s cost up to $1,500. Labor and installation costs can be included if the labor costs are directly related to the onsite preparation, assembly or original installation of the air source heat pump. The tax credit cannot be allocated towards a future tax year. Criteria for National Tax Credit: The heat pump must be on an existing primary residence home, as rental property and new construction do not qualify for the credit. For split systems, the HSPF must be 8.5 or greater with a SEER of 15 or greater and an EER of 12.5 or greater. For package systems, the HSPF must be 8 or greater with a SEER of 14 or greater and an EER of 12 or greater. Timeline: The tax credit does not correlate to the date the heat pump is purchased, but rather the date it is placed in service. The heat pump must be installed and in working condition between January 1, 2009 and December 31, HOME IMPROVEMENT ENERGY TAX CREDITS EXPLAINED WHITE PAPER 7

8 Heating, Ventalation & Air Conditioning (HVAC) Systems Water Heaters National Tax Credit Amount: 30% of the product s cost up to $1,500. Labor and installation costs can be included if the labor costs are directly related to the onsite preparation, assembly or original installation of the water heater. The tax credit cannot be allocated towards a future tax year. Criteria for National Tax Credit: The water heater must be on an existing primary residence home, as rental property and new construction do not qualify for the credit. Gas, oil or propane water heaters must have an energy factor of 0.82 or greater or a thermal efficiency of 90% or greater. Electric heat pump water heaters must have the energy rating of 2 or greater. Timeline: The tax credit does not correlate to the date the water heater is purchased, but rather the date it is placed in service. The water heater must be installed and in working condition between January 1, 2009 and December 31, Biomass Stoves Biomass stoves burn biomass fuels, which are made from any renewable plant, to provide heat or hot water. The fuel can be made of agricultural crops, fibers, grasses, wood and wood waste (also known as pellets), residues and/or trees. National Tax Credit Amount: 30% of the product s cost up to $1,500. Labor and installation costs can be included if the labor costs are directly related to the onsite preparation, assembly or original installation of the biomass stove. The tax credit cannot be allocated towards a future tax year. Criteria for National Tax Credit: The central air must be on an existing primary residence home, as rental property and new construction do not qualify for the credit. For split systems, the HSPF must be 13 or greater with a SEER of 16 or greater. For package systems, the HSPF must be 12 or greater with a SEER of 14 or greater. Timeline: The tax credit does not correlate to the date the biomass stove is purchased, but rather the date it is placed in service. The stove must be installed and in working condition between January 1, 2009 and December 31, State tax credits are not in place as of 04/02/2010 for Rhode Island, Massachusetts and Connecticut. However, some utility companies and household appliance manufacturers provide rebates for purchasing energy efficient products. Please consult the manufacturer and/or your local utility company for details. 8

9 Renewable Energy Renewable energy is energy that is produced through the earth s naturally replenishing resources such as the sun, wind, water, and geothermal heat. Now that renewable energy is gaining popularity, fresh ideas for evolving the renewable energy sector have emerged. One example of this is the new renewable energy, which includes biomass (wood burning), solar energy, small hydro and wind energy. For the renewable energy tax credits, there is no maximum tax credit limit to what you can receive. RENEWABLE ENERGY KEY TERMS Nameplate is the maximum capacity or output of a generating source. Coefficient of Performance (COP) is the ratio of the change in heat from the heat reservoir of interest to the supplied work. The renewable energy industry is still evolving and new and exciting ways to utilize the earth s resources are being discovered every day. Below is a guide that easily explains what criteria the product must meet in order to qualify for The Energy Tax Credits. Geothermal Heat Pumps This technology uses the earth s heat in the ground rather than outside air to provide heating, hot water and air conditioning. National Tax Credit Amount: 30% of the cost for the product and installation with no cap. Installation expenses can be included so long as the labor costs are directly related to the onsite preparation, assembly or original installation of the heat pump. For heat pumps, the piping and wiring can be included since they are necessary in order to connect the product to the home. The unused portion of the credit may be allocated towards a future tax year prior to State Tax Credit Amount: Rhode Island: 25%* of the cost and installation (based on a $7,000 maximum system cost). For geothermal the minimum coefficient of performance is 3.4 or it must have a minimum efficiency ratio of 16. Tax credit cannot be carried over to another tax year. Geothermal installations must be approved by city or town inspector. Massachusetts: Any equipment relating to any solar, wind powered or heat pump system is exempt from state sales tax. Criteria for National Tax Credit: The heat pump can be in an existing or new construction property. The tax credit also applies to second homes. Rental properties are ineligible. For closed loop heat pumps, they must have an EER of 14.1 or greater and COP of 3.3 or greater. For open loop heat pumps, they must have an EER of 16.2 or greater and a COP of 3.6 or greater. The direct expansion heat pumps must have an EER of 15 or greater and COP of 3.5 or greater. As of May 31, 2009, all Energy Star geothermal heat pumps are eligible for the tax credit. Beginning December 1, 2009 a geothermal heat pump does not have to include water heating in order to qualify for the tax credit. Also as of December 1, 2009 water-to-water geothermal heat pumps can qualify for the tax credit. Timeline: In order to receive the tax credit, the heat pump must have been placed in service during the year which you are claiming taxes. The heat pump must be installed and in working condition between the dates of January 1, 2009 and December 31, HOME IMPROVEMENT ENERGY TAX CREDITS EXPLAINED WHITE PAPER 9

10 Renewable Energy In addition to the state and federal tax credits, many utility companies offer rebates for installing energy efficient and renewable energy products. Please consult with your local utility company to see if you are eligible for any rebates or credits. CLAIMING THE TAX CREDIT ** For products that have been placed in service (installed and in working condition) in 2009, you can submit the cost of the product, and labor if applicable, with your personal taxes. If the product has been purchased but not installed by December 31, 2009 you will claim the tax credit on your 2010 taxes in Solar Water Heaters Solar water heaters use the sun s heat, rather than the electricity or gas used in traditional water heaters, to heat water for your home. National Tax Credit Amount: 30% of the cost for the product and installation with no cap. Installation expenses can be included so long as the labor costs are directly related to the onsite preparation, assembly or original installation of the water heater. For solar water heaters, the piping and wiring can be included since they are necessary in order to connect the product to the home. The unused portion of the credit may be allocated towards a future tax year prior to Criteria for National Tax Credit: The water from the water heater must be used inside the dwelling, therefore swimming pools and hot tubs are not eligible. The credit applies only to the solar water heating equipment cost and not the entire water heating system for the home. In order to qualify, half of the energy produced must be from the sun. As of May 31, 2009 all Energy Star solar water heaters are eligible for the tax credit. However, the system must be certified by the Solar Rating and Certification Corporation. This information can be located at State Tax Credit Amount: Rhode Island: 25%* of the cost and installation (based on a $7,000 maximum system cost for solar hot water and heat). Tax credit cannot be carried over to another tax year. Massachusetts: 15% of net expenditures including installation up to $1,000 against the state s income tax. Excess tax credit can be carried over for up to 3 years. Criteria for State Tax Credit: Rhode Island: 25%* Solar hot water must have a minimum collector area of 34 square feet and active solar heating must have a minimum collector area of 125 square feet. Solar installations must be approved by city or town inspector. Massachusetts: The solar water system must have a lifespan of at least 5 years. Timeline: In order to receive the tax credit, the water heater must have been placed in service during the year which you are claiming taxes. The water heater must be installed and in working condition between the dates of January 1, 2009 and December 31, MOONWORKS QUALIFIED PRODUCT: SCHÜCO SOLAR HOT WATER SYSTEM 10 * To apply for the tax credit, taxpayers must first obtain a system approval from the Rhode Island Office of Energy Resources (RI OER), which is to be attached to the income tax filing. The RI OER website provides details on the criteria and application for system approval. Although the statute contains a provision for RI OER to certify contractors in lieu of requiring system certification, contractor certification procedures are not in place at this time. The term net expenditure is defined as the total of the purchase price for any renewable energy source property and installation cost less any federal tax credits and rebates/grants received from the U.S. Department of Housing and Urban Development. The credit is available to any owner or tenant of residential property. For a newly constructed home, the credit is available to the original owner/occupant. Joint owners of a residential property shall share any credit available to the property under this subsection in the same proportion as their ownership interest. To claim the tax credit, complete Schedule EC. ** Moonworks is not a financial advisor. As with any tax related and/or financial decisions, please consult your financial advisor and/or tax advisor.

11 Photovoltaic (PV) Solar Panels PV Solar Panels are panels that go on your home s roof and use the sun s light to provide electricity for your home. National Tax Credit Amount: 30% of the cost for the product and installation with no cap. Installation expenses can be included so long as the labor costs are directly related to the onsite preparation, assembly or original installation of the solar panels. For solar panels, the piping and wiring can be included since they are necessary in order to connect the product to the home. The unused portion of the credit may be allocated towards a future tax year prior to Criteria for National Tax Credit: The system must provide electricity for the home and comply with all electrical and fire codes. State Tax Credit Amount: Rhode Island: 25%* of cost and installation on PV. Tax credit cannot be allocated towards a future tax year. Massachusetts: 15% of net expenditures including installation up to $1,000 against the state s income tax. Excess tax credit can be carried over for up to 3 years. Criteria for State Tax Credit: Rhode Island: Credit is based on a maximum system cost of $15,000 and a minimum module size of 24 square feet. Solar installations must be approved by city or town inspector. Massachusetts: The PV system must have a lifespan of at least 5 years. Timeline: In order to receive the tax credit, the solar panels must have been placed in service during the year which you are claiming taxes. The PV solar panels must be installed and in working condition between the dates of January 1, 2009 and December 31, Small Residential Wind Turbines Small wind turbines use the wind to create kinetic energy that works with your home s electrical system to provide electricity for your home. National Tax Credit Amount: 30% of the cost for the product and installation with no cap. Installation expenses can be included so long as the labor costs are directly related to the onsite preparation, assembly or original installation of the wind turbines. For wind turbines, the piping and wiring can be included since they are necessary in order to connect the product to the home. The unused portion of the credit may be allocated towards a future tax year prior to State Tax Credit Amount: Rhode Island: 25%* of cost and installation. Tax credit cannot be allocated towards a future tax year. Criteria for State Tax Credit: Rhode Island: Minimum capacity for the wind turbine is 250 watts at 28 mph. Timeline: In order to receive the tax credit, the wind turbine must have been placed in service during the year which you are claiming taxes. The wind turbine pump must be installed and in working condition between the dates of January 1, 2009 and December 31, HOME IMPROVEMENT ENERGY TAX CREDITS EXPLAINED WHITE PAPER 11

12 For more information, please check out the following resources: Your Local Home Improvement Specialist