12.13.2010 2:32 PM

Tax Bill Would Slash Home Energy Efficiency Tax Credits by Two Thirds

Forget the "Death Tax" debate or the tax rate on millionaires for a minute. Up to $1,500 in tax credits is available for home energy efficiency improvements through Dec. 31. After that, the incentive could be reduced to $500, and it will be harder to qualify.

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Photo: Istock

By Dan Shapley

Lucrative home improvement tax credits, offering to pay 30% of the cost of many energy efficiency projects, up to $1,500, will expire Dec. 31, 2010 if Congress doesn't extend them.

You may have heard Congress and President Obama have been arguing over how to extend tax breaks, recently. (God bless you if you've managed to avoid hearing it discussed, loudly and constantly, in the week since Obama struck a deal with Republicans.) You probably have not heard about the fate of these tax credits for home improvements, though.

As written, the bill Sen. Harry Reid is advancing in the Senate would reduce the tax incentives for energy efficient windows, insulation, roofing, Energy Star heating and air conditioning systems and other projects to just $500.

Worse, for those who haven't had time or money available to make the improvements on their home in 2009 and 2010, when the more generous tax credit was available, is that taxpayers can't claim the credit if they've already claimed $500 on energy efficiency improvements in the past. Since the energy efficiency tax credits have been in place since 2005, homeowners who previously claimed $500 or more would not be able to claim another dime.

"If you'd installed the equipment in 2009 or 2010 you could claim that $1,500 credit, but if you install it after December 31 you can only claim $500 – if you've never claimed anything for," Meg Waltner, energy efficiency advocate for NRDC, told The Daily Green.

The $1,500 tax credit is one of those stimulus spending programs from the American Recovery and Reinvestment Act that was designed not only to give homeowners a chance at a tax break, but also to spur the economy. For many manufacturers of energy efficiency products, and the contractors who install them in homes across the nation, these tax credits have pumped lifeblood into their businesses during the recession and slow recovery.

"Certainly they've gotten a lot more participation," Steven Nadel, executive director of the American Council for an Energy-Efficient Economy, told The Daily Green. "Anytime you look at a newspaper, you see the window manufacturers advertising. I've heard people in the heating and cooling industry say that it's helping their business."

That said, ACEEE's highest priority items are likely to be included in the tax bill – extension of a $2,000 credit for new energy efficient homes that has boosted market share of qualifying homes from 1% to 12%, and a tax incentive for the manufacturers of energy efficient appliances. While the General Accounting Office hasn't reported yet on the economic or energy impacts of the homeowner tax credits, Nadel said they have been less effective uses of taxpayer dollars, with a cost as high as $2 billion. Before extending them, ACEEE would change the bill to require certified installation of qualified HVAC equipment, include labor costs for qualified insulation and increase the efficiency of qualifying windows.

Lobbyists from the window industry (75% of windows qualify for the tax credits, which is why Nadel says the standard for qualifying windows should be upgraded) are the loudest voice calling for extension of the homeowner tax credits, Nadel said. Right now, they are trying to get their message across to lawmakers at a time when there's a whole lot of screaming about other tax-related issues: The fate of the Bush tax cuts for millionaires, the level of the estate tax and the effectiveness of shorterm tax cuts for generating longterm economic growth.

As for the home energy tax credits, "My sense is it's a longshot to get it in the Senate," Nadel said. "The House will demand a few changes. Is this a high enough priority for this to make it on the list?"

With less than three weeks to go before the end of the year, the end of the Congressional session – and the expiration of the tax laws – the fate of the energy efficiency tax credits will be known soon. (Hint, hint: Now would be the time to contact your representatives and senators to tell them you want Section 25C of the tax bill to include an unrestricted $1,500 tax credit for qualifying home energy efficiency improvements, with the ACEEE's recommended tweaks.) Meanwhile, if you have some spare time, this weekend would be a good time to install that insulation. If you have made qualifying home improvements in 2009 and 2010, here's how to apply for the tax credit.

Meanwhile, NRDC is opposing the Reid tax bill for broader reasons: While it includes important incentives for renewable energy, it doesn't extend a credit for clean energy manufacturing and it includes billions in tax breaks for liquid coal and corn ethanol, which in sum NRDC calls a major step backward for the environment.


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