Energy Credit Guidance for Home Owners & Builders
The Treasury Department and Internal Revenue Service (IRS) have issued guidance on the certification the homeowners may rely on when claiming credits for purchases that make their home more energy efficient and the energy efficient homes credit available to eligible contractors constructing qualified new energy efficient homes, including manufactured homes constructed in accordance with the Federal Manufactured Homes Construction and Safety Standards.
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A recent change is tax law provides a tax credit to individuals making energy-conscious purchases and improving the energy efficiency of existing homes during 2006 and 2007. The law provides homeowners with a 10 percent credit for buying qualified energy efficiency improvements such as insulation, exterior windows, exterior doors or metal roofs, meeting the energy efficiency criteria established by the 2000 International Energy Conservation Code and supplements and installed in their main home in the U.S..
The law also provides a credit for costs related to residential property expenses. To qualify as a residential energy property, the property must meet certification requirements prescribed by the Secretary of the Treasury and must be installed in the taxpayer’s main home in the U.S. The maximum credit for all taxable years is $500 and no more than $200 can be attributable to expenses for windows. Other eligible expenses include:
- $50 for each advanced main air circulating fan.
- $150 for each qualified natural gas, propane or oil furnace or hot water heater.
- $300 for each item of qualified energy efficient property.
Credits are also available for adding qualified solar panels, solar water heating equipment or fuel cell power plant to main homes in the U.S.. Taxpayers are allowed one credit equal to 30 percent of the qualified investment in a solar panel, up to a maximum of $2,000. Another equivalent credit may be taken for investing in a solar water heating system. No part of either system can be used to heat a pool or hot tub. Taxpayers are also allowed a 30 percent tax credit, not exceeding $500 for each 0.5 kilowatt hour of capacity, for the purchase of qualified fuel cell power plants. In general, a qualified fuel cell power plant converts a fuel into electricity using electrochemical means, has an electricity-only generation efficiency of more than 30 percent and generates at least 0.5 kilowatts of electricity.
These items must be placed in service after December 31, 2005 and before January 1, 2008.
Eligible contractors who build a qualified new energy efficient home may qualify for a credit of up to $2,000. The home qualifies for the credit if:
- It is located in the United States;
- Its construction is substantially completed after August 8, 2005;
- It meets the statutory energy saving requirements, and
- It is acquired from the eligible contractor after December 31, 2005, and before January 1, 2008, for use as a residence.
In order to meet the energy saving requirements, a home must be certified to provide a level of heating and cooling energy consumption that is at least 30 to 50 percent, in the case of manufactured homes, and 50 percent for other homes, below that of a comparable home constructed in accordance with the standards of the 2004 Supplemental to the 2003 International Energy Conservation Code. It must also have building envelope component improvements providing a level of heating and cooling energy consumption that is at least 10 percent below that of a comparable home. Manufactured homes can also qualify for the credit by meeting Energy Star standards:
- Site-built homes qualify for a $2,000 credit if they reduce energy consumption by 50 percent relative to the International Energy Conservation Code standard.
- Manufactured homes qualify for a $1,000 or $2,000 credit, depending on the level of energy savings achieved. The guidance provides information about the certification process that a builder must complete to qualify for the credit. The guidance also provides for a public list of software programs that may be used in calculating energy consumption for purposes of obtaining a certification.
Notice 2006-26 provides guidance on the certification homeowners may rely on when claiming credits for purchases making their homes more energy efficient. Notice 2006-27 provides guidance for the credit for building energy efficient homes, other than manufactured homes, while Notice 2006-28 provides guidance for the credit for building energy efficient manufactured homes.