President Obama Increases Renovation Tax Credits

On October 3, 2008 outgoing-President Bush signed into law the “Emergency Economic Stabilization Act of 2008” which ultimately breathed life into the tax credits for energy-saving renovations, a program that was only in effect for 2007. The act, which was known by the tax department tax credit, was a stimulus for homeowners to do energy-efficient upgrades to their homes and the President's new revision extended this benefit for 2009. The inclusions are windows, doors, HVAC systems, insulation and non-solar water heaters and the program runs until December 31, 2009. In addition window film, plastic attachments to reflect out heat in the summer and keep it inside in the winter, has also been approved for the credit.

The National Association of Home Builders (NAHB) welcomed this stimulus package as this went in conjunction with a 2008 California study which showed that that most homes built before 1983 accounted for 70% of the greenhouse gas emissions. However, they found it too small of an initiative to make a large impact as it only accounted for 10% of the cost of the materials and a lifetime cap of $500. This would not do much to refit energy-losing homes.

Refitting Older Homes a Large Priority

When the study was broken down into specifics it pointed out that fixing older homes was a better investment for the various government agencies than concentrating on new building. In fact spending $10,000 to retrofit an old 1960s home could eliminate 8.5 tons of carbon at a cost of $588 to $1,176 per ton to the homeowner depending on state and federal tax credits and incentives. Conversely, increasing the energy efficiency of a new home 35% over current requirements would cost around $5,000 and would reduce emissions by only 1.1 tons at a cost of $4,545 per ton. So the sharp end of the stick should be pointed at the older homes.

This only stands to reason because older homes, although built with better structural materials, were often lacking in insulation and efficient central heating and air conditioning systems. Many homes built before 1930 had no insulation as the rule of thought at the time was that the dead air space would be sufficient. However, the empty walls encouraged convection currents of air that literally robbed the heat from the home in winter and the coolness in summer. As well, the single-paned windows only produced an R-value of .25 and even two panes did not break 1.0. When all the costs are factored retrofitting existing homes with energy-efficient upgrades is four to eight times cost-efficient with the same amount of carbon reduction than upgrading new housing with energy-efficient improvements.

President Obama's Plan

The new government has also been paying attention. Under a new legislation recently signed into effect by President Obama, the percentage of the cost of building materials, as well as the lifetime cap, have been tripled to 30% and $1,500, respectively. In addition the list of eligible renovations has been expanded to include many items that were borderline on the last initiative. And to further sweeten the pot the new administration has extended the deadline for applying to the end of 2010. Many people do not understand that a tax credit is actually better than a rebate because it is a benefit in after-tax dollars. This increases the value of the $1500.

How to Apply for the Credits

The first order of business is for the remodelers to familiarize themselves with the new initiatives so that they can better advise the homeowners. They do not need to give their customers their own sales receipts for the product as an Energy Star qualification from the manufacturer will be fine. So that when they write a contract they will have to supply the following information:

When the work has been completed the homeowners should get all the appropriate documents for submission on their next income tax return. These do not have to be submitted with the return but should be kept in a handy location in case the IRS should decide that an audit is required. The National Association of Home Builders suggests that these documents be held:

  1. Name and address of the manufacturer
  2. Component identification
  3. Make, model and other identifying information
  4. Proof that the item meets the IRS Section 25C requirements
  5. Climate zones for which the criteria are met.
  6. A declaration that the certification statement is true.

This will not produce a great rush for remodeling in the country but it will open the tap in a time when people are not opening their wallets at all.

For more information on the as IRS Section 25C tax credit and what is covered under the Act consult a licensed contractor in our Contractor Directory. Most contractors will have this information but make sure that you get all the answers by checking with the IRS website too. For faster results post your energy-saving projects online and a contractor will contact you.

Posted by: TrustedPros
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