IRS Guidance Helps Consumers Benefit from New Federal Tax Incentives for Energy-Efficiency Home Improvements
Washington, D.C., February 23 – The Tax Incentives Assistance Project (TIAP) has posted links to new Internal Revenue Service guidelines so consumers and businesses can take full advantage of new federal tax credits for energy-saving technologies and practices. The guidelines cover existing homes, new homes, and new manufactured homes.
TIAP is a nonprofit effort by a coalition of more than a dozen organizations, led by the American Council for an Energy-Efficiency Economy (ACEEE) and the Alliance to Save Energy, to inform consumers and businesses about federal tax incentives enacted in the Energy Policy Act of 2005.
“This guidance clarifies what measures are eligible for tax incentives and provides clear direction to taxpayers on what they need to do to qualify for the tax incentives,” said ACEEE Executive Director Steven Nadel, who coordinates the overall TIAP effort. “We hope that the IRS will soon issue similar guidance for other incentives in the Energy Policy Act of 2005 including commercial buildings and heavy-duty vehicle tax incentives,” he continued.
“We commend the IRS for issuing guidelines less than two months into the two-year window for claiming the energy-efficiency tax credits,” said Alliance to Save Energy President Kateri Callahan. “Having this guidance so soon enables consumers to purchase and install insulation, Energy Star-labeled windows and other energy- and money-saving home improvements in time to lower both current winter energy costs and their 2006 federal taxes. We also are gratified that the IRS adopted the Alliance’s suggestion to make all Energy Star windows eligible for a tax credit. Consumers recognize the Energy Star as the government’s label for energy-efficient products, and this makes it easy for them to choose windows that qualify for the tax credit.”
For existing homes, homeowners can claim credits totaling up to $500 for any combination of eligible measures installed in their primary residences. Eligible measures and credit amounts are:
A credit of 10 percent of component costs (but not installation costs) for:
- Insulation (meeting efficiency levels defined in the 2001 Supplement to the International Energy Conservation Code -- IECC)
- Windows (meeting ENERGY STARSM or IECC requirements; there is a $200 ceiling on the tax credit for windows)
- Storm windows and doors, which when combined with existing windows and doors meet IECC requirements
- Sealing to limit air infiltration
- A credit of $150-300 for heating and cooling equipment meeting defined efficiency levels
- A credit of $300 for water heaters meeting defined efficiency levels.
Under the IRS guidance, manufacturers or contractors will provide purchasers with a certification that a measure is eligible for the tax incentives, and homeowners can rely on this certification to claim their tax incentive.
Home builders are eligible for tax incentives of $2,000 for new homes. To qualify, homes must be designed to use 50 percent less energy for heating and cooling than a reference home design that meets the standards of Section 404 of the 2004 International Energy Conservation Code (IECC). The rules set out the procedures for documenting and certifying the home’s energy performance and rely heavily on home energy rating procedures developed by the national Residential Energy Services Network (RESNET).
For manufactured new homes (those governed by federal construction standards), the new energy law sets forth a slightly different set of qualification criteria, allowing builders of these homes to qualify for either a $2,000 credit, using procedures similar to those applicable to new homes as described above, or of a $1,000 credit if homes are documented to save 30 percent of the heating and cooling energy compared to a reference home that meets the standards of Section 404 of the 2004 IECC. Homes that are certified under the Energy Star Homes program for manufactured homes also qualify for the $1,000 credit.
The TIAP website has additional details on the new IRS guidance and on other federal energy tax incentives created by the Energy Policy Act of 2005.