, increasing the value of your home, or simply reducing your annual heating costs, even small investments in energy-efficient products can produce substantial results.
For example, installing compact fluorescent bulbs can reduce energy usage by 60 percent while producing only a quarter of the heat of a standard bulb. Replacing your water heater with a solar version can reduce your water-heating costs by half and reduce carbon dioxide emissions by 50 tons over the heater's lifetime.
Energy-saving improvements to a home can reduce its energy costs by a third while significantly reducing carbon emissions. They can also enhance its value.
If the potential benefits have led you to consider upgrading your home, 2009 may be your year. The Emergency Economic Stabilization Act of 2008 extended a number of federal tax benefits for investments in energy-saving upgrades by homeowners. It also established new tax benefits for homeowners, home builders, and owners of commercial buildings. Many state and local governments also offer incentive programs, as do local utility companies.
Federal Tax Credits for Homeowners
As a homeowner, you may be eligible for federal tax credits for the cost of home improvements you make in 2009, excluding installation, as listed below.*
The improvements must meet certain performance and safety standards, such as ENERGY STAR qualification, IECC requirements, or minimal expected life or warranty period, among others. Some improvements may also require a manufacturer's certification. They must be purchased and placed in service between January 1 and December 31 of 2009. Finally, the total credit for some of these improvements is limited to an aggregate of $500 over the three-year period for which the credit applies (2006, 2007, and 2009).
Note that improvements made during 2008 are not
eligible for these homeowner tax credits.
Federal Tax Credits for Home Builders
Home builders may also benefit from federal energy-efficiency tax credits. If you're a home builder, you may qualify for a $2,000 tax credit for a new home if its heating and cooling achieves a 50 percent energy savings over specified IECC standards. At least a fifth of the energy savings must come from building envelope improvements. (This credit is available to contractors of manufactured homes that conform to certain construction and safety standards.)
To qualify for the $2,000 credit, the home must satisfy all of the following requirements:
be located within the United States
have substantially completed construction after August 8, 2005
be acquired from the eligible contractor for use as a residence between January 1, 2006 and December 31, 2009.
Separately, producers of manufactured homes are eligible for a $1,000 tax credit for a manufactured home if its heating and cooling system achieves a 30 percent energy savings over specified IECC standards. At least a third of the energy savings must come from building envelope improvements. The $1,000 credit is also available for ENERGY STAR-qualified manufactured homes.
Because these tax credits are not directly linked to ENERGY STAR (with the exception of the $1,000 credit for an ENERGY STAR-qualified manufactured home) it is possible that a builder of an ENERGY STAR-qualified home may not be eligible for a credit.
Unlike the tax credits for homeowners, this deduction is available for 2008.
Federal Tax Deductions for Commercial Buildings
If you own or lease a new or existing commercial buildings that achieves a 50 percent reduction in energy and power costs (determined with reference to specific standards), you're eligible for a deduction of up to $1.80 per square foot.
If the building's energy savings are less than 50-percent, you may still qualify for a smaller deduction―0.60 per square foot if the reduction in energy and power costs is at least 16 ⅔ percent.
To qualify for the deduction, you must obtain a certification that the required energy savings will be achieved.
Unlike the tax credits for homeowners, this deduction is available for 2008.
Additional Incentives for Washington Residents
Washington state―and many other states and local governments, and some utility companies―offer tax incentives for investments in energy-efficient products. For example, Washington state currently excludes from sales tax certain equipment purchases, as well as any associated labor and installation services. Examples include solar water heating and technologies to generate electricity from sun and wind used in residential or commercial buildings:
Seattle City Light offers rebates of between $30 and $200 for purchases of energy-efficient refrigerators and freezers, $20 for ENERGY STAR lighting fixtures, and up to $100 for energy-efficient clothes washers.
Puget Sound Energy offers a similar rebate program.
For information on other incentive programs, refer to DSIRE (Database of State Incentives for Renewable Energy) available online at
http://www.dsireusa.org/index.cfm?EE=1&RE=1. DSIRE is a comprehensive resource for information on incentives offered at state, local, utility, and federal levels that promote renewable energy and enhanced energy efficiency.
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