Tax Credit FAQ'S

How has the new Stimulus bill affected the tax credits for energy efficient home improvements?

On February 17, 2009, President Obama signed a stimulus bill (The American Recovery and Reinvestment Act of 2009) that made some significant changes to the energy efficiency tax credits. The highlights are:

• The tax credits that were previously effective for 2009, have been extended to 2010 as well.
• The tax credit has been raised from 10% to 30%.
• The tax credits that were for a specific dollar amount (ex $300 for a CAC), have been converted to 30% of the cost.
• The maximum credit has been raised from $500 to $1500 for the two years (2009?2010). However, some improvements such as geothermal heat pumps, solar water heaters, and solar panels are not subject to the $1,500 maximum.
• The $200 cap on windows has been removed.

 Old Tax Credit

What is the energy efficiency tax credit worth?

Homeowners are eligible for a tax credit of up to 10% of the costs of qualified energy efficiency improvements made to their homes. So, if a homeowner spends $800 to add proper levels of insulation to their home, they would qualify for a Federal tax credit of $80.

Under the new stimulus bill, that tax credit could be up to 30% - a Federal tax credit of $240 dollars.

What energy efficiency improvements are eligible for the tax credit?

The tax credit for existing homes requires that the building envelope component being renovated must meet the energy efficiency minimum standards outlined in the 2004 International Energy Conservation Code. Insulation is a key component of the home or building envelope. Other qualified envelope components include windows (only for a maximum credit of $200), doors, skylights and air duct sealing.) EPA?s ENERGY STAR Home Sealing Program offers consumers advice on how to improve their building envelope. Adding insulation is one of the fastest and most effective ways to save energy in your home.

What areas of my home are considered the house envelope?

The envelope is defined as the area along the perimeter of the home that separates the living space from the outside. This includes attics/ceilings, walls, basements and crawlspaces.

Do the improvements have to meet any specific requirements?

Improvements to the home or building envelope must meet the 2001 Supplement to the 2000 International Energy Conservation Code (IECC) or the 2004 Supplement to the 2003 IECC.

Why does the IRS guidance refer to two different codes?

You should ask the IRS why they chose to do that. Our assumption is that the IRS recognized the need for flexibility when dealing with a wide variety of existing housing stock.

What are the 2001 Supplement to the 2000 International Energy Conservation Code (IECC) and the 2004 Supplement to the 2003 IECC?

These are the model building energy codes that are used around the country as a basis for local codes. They represent the minimum levels of insulation required by codes. These codes are constantly being updated, and the 2001 and 2004 Supplements to the IECC are two versions approved for use. States are free to adopt any version of the code they wish. The current IECC is the 2006 version.

How much insulation do I need in my home to meet the levels required for the tax credit?

The amount of insulation in a home varies depending upon where you live and which IECC code you are following per the guidelines. Since these codes are quite complex, NAIMA has developed a simplified set of recommended levels of insulation to maximize comfort and energy savings based on recommendations from the Department of Energy and the levels of insulation required under the 2001 and 2004 Supplements to the International Energy Conservation Code (IECC). NAIMA?s recommendations are consistent with the 2001 Supplement to the 2000 International Energy Conservation Code (IECC) and the 2004 Supplement to the 2003 IECC. Click here for a state by state map showing NAIMA's recommended R-value in your area.

How do I know how much insulation I already have?

Look for an R-value printed on the facing of fiber glass and mineral wool batts. If you have an unfaced batt or any type of loose fill insulation, use a ruler to measure the amount of insulation currently installed. If you have six inches or less, you probably need more. In most homes, adding an insulation layer of R-19 to R-30 should help achieve the levels recommended for optimal comfort and savings, and qualify for the Federal tax credit.

If I am adding more insulation to my home, do I need to remove what I already have?

No, R-values are cumulative. For example, two layers of R-19 batts will give you a total of R-38. Consider using unfaced R-19, R-25 or R-30 fiber glass or mineral wool batts and laying them cross-wise to the existing insulation covering the joists. If there is no insulation in your attic, use R-38 or R-49 full width, faced batts, or fiber glass or mineral wool loose fill insulation to reach the appropriate R-value for your area.

Is there a specific time frame in which I need to make energy efficiency improvements in order to be eligible for the tax credit?

The IRS guidelines state that consumers who want to take advantage of the Federal tax breaks for their homes must install the products between January 1, 2006 and Dec. 31, 2007.

Do I still get the tax credit if I hire a professional contractor to add insulation?

Yes, however, the IRS guidance states that the tax credit is based on 10% of the cost of the energy efficiency product, not the installation. Make sure that the contractor gives you an itemized receipt that breaks out the cost of the insulation from the labor charge. The contractor will also need to provide you with information on the product used and its manufacturer so that you may get a manufacturer?s certification statement from the manufacturer?s website. The contractor may also provide you with a copy of the manufacturer?s certification statement. Click here for links to the manufacturer?s certification statements from NAIMA members.

What paperwork will I need to produce at tax time in order to be eligible for the tax credit?

The IRS guidelines state that you will need to retain any retail or contractor receipts from the purchase of energy efficiency products made between Jan. 1, 2006 and Dec. 31, 2007. You will also need a manufacturer?s certification statement, which you should be able to download from the manufacturer?s website. Click here for links to the manufacturer?s certification statements from NAIMA members. Click here for the IRS Instructions on Existing Homes Tax Credit included in Estimated Tax Form

Can I only take the credit once between January 1, 2006 and December 31, 2007?

The IRS guidelines state that you can take the credit in both years if you made separate qualifying purchases for a total maximum credit of $500. For instance, if you upgrade your insulation in 2006 and your windows in 2007, you can take the allowed tax credit in both years not to exceed the maximum allowed credit of $500. 

 The NEW Tax credit now has a maximum of $1,500 

Do I need to add insulation all over my house to qualify?

The IRS guidelines state that homeowners must bring the specific component being improved to the levels required by the 2004 International Energy Conservation Code. So, if you choose only to add insulation to your attic, you just have to meet the levels of insulation required by the 2004 IECC for attics.

Do I need to do an energy audit or a post-insulation inspection?

The IRS guidelines do not require an inspection or audit for the existing homes tax credit. However, energy audits can be useful tools to help you assess the best places to add insulation in your home. 

Do caulk and weather-stripping qualify for the tax credit?

These products are not covered by the 2004 International Energy Conservation Code and therefore do not qualify for the credit. That said, coupling home sealing techniques, like caulk and weather-stripping with insulation can help achieve increased energy savings and better comfort. These are low cost, easy do-it-yourself jobs that can further increase the value of adding proper levels of insulation. Visit www.energystar.gov for information on the Energy Star Home Sealing Program which provides homeowners with detailed information on home sealing and insulation.

Do appliances qualify for the tax credit?

Appliances such as heating and cooling equipment also qualify for tax credits under the Energy Policy Act. For advice on those tax credits, contact the US Department of Energy or the manufacturers or trade associations in that industry.

I?m buying a new home that is energy efficient. Does that qualify for the tax credit?

A separate tax credit for new homes was also passed in the Energy Policy Act. However, this credit is for the builder. Discuss this credit with your builder to see if your new home qualifies.

Can I only use some kinds of insulation to get the tax credit?

All insulations that meet the Federal Trade Commission requirements for R-value qualify for the tax credit. This includes fiber glass and mineral wool insulations. 

If I add insulation to interior walls of my home for sound control, am I still eligible for the tax credit?

While acoustical insulation adds tremendous comfort to a home, the tax credit applies only to improvements made to the building envelope since they affect energy use. The building envelope does not include internal walls or acoustical insulation.