A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States and used as a residence by the taxpayer. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is on a new home, the “placed in service” date is the date of occupancy by the homeowner. Expenditures include labor costs for onsite preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. The excess credit can be carried forward until 2016, but it is unclear whether the unused tax credit can be carried forward after then. The maximum allowable credit, equipment requirements and other details vary by technology, as outlined below.
 
 
Solar-electric property

• There is no maximum credit for systems placed in service after 2008. The maximum credit is $2,000 for systems placed in service before January 1, 2009.  
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.  
• The home served by the system does not have to be the taxpayer’s principal residence.  
• Note that the Solar Energy Industries Association (SEIA) has published a three-page document that provides answers to frequently asked questions regarding the federal tax credits for solar energy.

 
Solar water-heating property

• There is no maximum credit for systems placed in service after 2008. The maximum credit is $2,000 for systems placed in service before January 1, 2009.  
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.  
• Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.  
• At least half the energy used to heat the dwelling’s water must be from solar in order for the solar water-heating property expenditures to be eligible.  
• The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.  
• The home served by the system does not have to be the taxpayer’s principal residence.  
• Note that the Solar Energy Industries Association (SEIA) has published a three-page document that provides answers to frequently asked questions regarding the federal tax credits for solar energy.

 
Fuel cell property

• The maximum credit is $500 per half kilowatt (kW).  
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.  
• The fuel cell must have a nameplate capacity of at least 0.5 kW of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.  
• In case of joint occupancy, the maximum qualifying costs that can be taken into account by all occupants for figuring the credit is $1,667 per half kilowatt. This does not apply to married individuals filing a joint return. The credit that may be claimed by each individual is proportional to the costs he or she paid.  
• The home served by the system must be the taxpayer’s principal residence.

 
Small wind-energy property

• There is no maximum credit for systems placed in service after 2008. The maximum credit is $500 per half kilowatt, not to exceed $4,000, for systems placed in service in 2008.  
• Systems must be placed in service on or after January 1, 2008, and on or before December 31, 2016.  
• The home served by the system does not have to be the taxpayer’s principal residence.

 
Geothermal heat pumps

• There is no maximum credit for systems placed in service after 2008. The maximum credit is $2,000 for systems placed in service in 2008.  
• Systems must be placed in service on or after January 1, 2008, and on or before December 31, 2016.  
• The geothermal heat pump must meet federal Energy Star program requirements in effect at the time the installation is completed.  
• The home served by the system does not have to be the taxpayer’s principal residence.

 
 
Significantly, The American Recovery and Reinvestment Act of 2009 repealed a previous limitation on the use of the credit for eligible projects also supported by “subsidized energy financing.” For projects placed in service after December 31, 2008, this limitation no longer applies.  
 
 
History  
The federal Energy Policy Act of 2005 established a 30% tax credit (up to $2,000) for the purchase and installation of residential solar electric and solar water heating property and a 30% tax credit (up to $500 per 0.5 kilowatt) for fuel cells. Initially scheduled to expire at the end of 2007, the tax credits were extended through December 31, 2008, by the Tax Relief and Health Care Act of 2006.  
 
In October 2008, the Energy Improvement and Extension Act of 2008 extended the tax credits once again (until December 31, 2016), and a new tax credit for small wind-energy systems and geothermal heat pump systems was created. In February 2009, The American Recovery and Reinvestment Act of 2009 removed the maximum credit amount for all eligible technologies (except fuel cells) placed in service after 2008.

• Insulation materials and systems designed to reduce a home’s heat loss or gain
• Exterior doors and windows (including skylights) and
• Pigmented metal roofs designed to reduce heat gain, and asphalt roofs with appropriate cooling granules.

Heating, Cooling and Water-Heating Equipment
Taxpayers who purchase qualified residential energy-efficient property are eligible for a tax credit worth 30% of the system cost, including labor costs. The credit may also be applied to labor costs for assembly and original installation of eligible property. The following types of equipment are eligible:

• Electric heat pump water heaters
• Electric heat pumps
• Central air conditioners
• Natural gas, propane or oil water heaters
• Natural gas, propane or oil furnace or hot water boilers
• Advanced main air circulating fans
• Biomass stoves that use “plant-derived fuel available on a renewable or recurring basis, including agricultural crops and trees, wood and wood waste and residues (including wood pellets), plants (including aquatic plants), grasses, residues, and fibers”

Performance and quality standards for tax credit eligibility vary by technology. (See 26 USC § 25C, H.R. 1424 of 2008 and H.R. 1 of 2009) for details. Additionally, the Energy Star web site offers detailed information on qualifying products, and IRS Notice 2009-53 provides more details.  
 
Significantly, The American Recovery and Reinvestment Act of 2009 repealed a previous limitation on the use of the credit for eligible projects also supported by “subsidized energy financing.” For projects placed in service after December 31, 2008, this limitation no longer applies. Businesses that receive other incentives are advised to consult with a tax professional regarding how to calculate this federal tax credit.  
 
Background

  
The Energy Policy Act of 2005 established the tax credit for energy improvements to existing homes. The credit was originally limited to purchases made in 2006 and 2007, with an aggregate cap of $500 for all qualifying purchases made in these two years combined. There were also separate individual caps for the different equipment types. H.R. 1424 of 2008 reinstated the credit for 2009 purchases and made other minor adjustments. H.R. 1 further extended the credit to include purchases made in 2010 and replaced the $500 aggregate cap with a $1,500 aggregate cap for installations made in 2009 and 2010. Tax credits for installations made in 2006 and 2007 are still limited to $500. Any purchase made in 2008 is not eligible for this tax credit.  
 
Geothermal heat pumps were originally eligible for this credit, with a $300 cap. However, geothermal heat pumps are now eligible for the residential renewable energy tax credit, with no cap.

Energy Secretary Steven Chu regularly describes himself as an “energy-efficiency nut.” Sixteen states, including California and New York, have passed legislation enabling homeowners to finance energy-efficiency upgrades through their property taxes. President Obama even declared insulation “sexy” at a Home Depot last month.

Then there are the sheer numbers:

Venture-capital investment in energy efficiency hit a record in 2009: at least 115 deals worth nearly $1 billion, according to a preliminary tally by the Cleantech Group and Deloitte. That’s up 39 percent from 2008.

Meanwhile, solar, which had 84 deals worth about $1.2 billion, was down 64 percent from 2008, and there’s increasing talk about solar being “overfunded.

Energy efficiency generally refers to a wide range of technologies designed to cut energy use such as improved lighting, greener building materials and sophisticated software that monitors power consumption.

And it’s increasingly seen as an effective way to create desperately needed jobs, save struggling consumers money, wean America from its dependence on foreign oil and reduce carbon emissions, all at the same time.

Home energy use accounts for 21 percent of the nation’s carbon footprint, roughly twice the carbon emissions of passenger cars, according to the Pew Center on Global Climate Change. There are 100 million homes in America, and energy-saving measures like insulation, caulking, and heating and cooling system upgrades can reduce household energy consumption by 10 percent to 40 percent, according to a memo by the President’s Economic Recovery Advisory Board.

When you really break it down, every dollar spent on energy efficiency pays back the investment four or five times. It saves people money and creates jobs.

The article, “Energy implications of bottled water” by researchers Peter H. Gleick and Heather Cooley, is the first peer-reviewed analysis of its kind and appears in the February 2009 edition of Environmental Research Letters.

“As bottled water use continues to expand around the world, there is growing interest in the environmental, economic, and social implications of that use, including concerns about waste generation, proper use of groundwater, hydrologic effects on local surface and groundwater, economic costs, and more. But a key concern is how much energy is required to produce and use bottled water,” said article co-author Peter Gleick, president of the Pacific Institute. “It turns out the answer is, a lot.”

The authors note that a single estimate of the energy footprint of bottled water is not possible due to differences among water sources, bottling processes, transportation costs, and other factors. Gleick and Cooley calculate the energy requirements for various stages in bottled water production, including the energy to manufacture the plastic bottles, process the water and the bottles, and transport and cool the final product.

• Bioplastics are designed to be composted, not recycled. The plant-based material will actually contaminate the recycling process if not separated from conventional plastics such as soda bottles and milk jugs.
• Home composting may not be an option. Some bioplastics cannot be broken down by the bacteria in our backyards; polyethylene (PE) made from cane sugar is one example. Only bioplastics that are fully biodegradable will break down in a home compost pile, and it could still take up to two years for certain items (e.g., forks and spoons). The rest require the high heat and humidity of an industrial composting plant—of which there are only about 100 in the country, and not all collect waste.
• Plants grown for bioplastics have negative impacts of their own. Bioplastics are often produced from genetically modified food crops such as corn and soybeans, a practice that carries a high risk of contaminating our food supply. Also, corn and soybean producers typically apply large amounts of chemical pesticides and fertilizers that pollute our air and water. To compound matters, the growth of the bioplastics and biofuels industries (both of which currently rely on food crops as their raw material) increases the demand for crops and the impact of agriculture worldwide.

Environmental advocates are calling for bioplastic production based on renewable crops (such as native wild grasses) grown without chemicals. Bioplastics could also be developed from agricultural waste. Until then, what’s a consumer to do?

• Look for the “Compostable” logo. The Biodegradable Products Institute identifies products appropriate for municipal and commercial composting facilities. To find facilities in your state, see the Related Resources.
• Opt for reusable or recycled instead. When you can’t use metal cutlery or ceramic dishes, look for recycled, dishwasher-safe products that can be recycled once they’re no longer usable.

Related Resources:

BioCycle Magazine-Find a composter

Biodegadable Products Institute

Sustainable Biomaterials Collaberative-Fact Sheets
 

Technology Snapshot & Benefits:
Energy-efficient mortgages are one of the most beneficial and under-utilized programs the consumer can find and capitalize upon in today’s real estate market. An energy-efficient mortgage can add an additional 15% of a home’s appraised value to the principal of a new loan or a refinance, often at no additional cost, no compromise in the loan-to-value ratio for the borrower, and sometimes at a better rate. Yes, one pays a bit more in principal and interest, at today’s rates, roughly $30-50 dollars per month, over the course of the loan. However, when this extra principal is used to install energy efficiency measures, it is not uncommon for the property owner to realize $75-100 per month in energy cost savings. When working with a lender who offers and understands the energy-efficient mortgage programs available, the steps for the borrower are very straightforward.

Estimated Cost Savings:
There are no additional costs associated with many energy efficient mortgage options, other than the cost of the additional $15,000 in amortized principal and interest (PI). By definition, the savings created by the energy efficiency measures are greater than the additional PI. This provides the assurance lenders need to conclude loans of this nature are good business.

In fact, the attractiveness of the energy efficient mortgage options also extends to lenders. What happens is that as the borrowers make the stated energy efficiency improvements and create monthly utility bill and other savings, their monthly cash-flow improves. This improvement in monthly cash-flow makes the borrower an even more stable and reliable customer, less likely to present the prospect of default.

Issues:

Most energy-efficient financing programs require that the borrower has an energy rating on their existing or new home. A rating typically involves an inspection by a professional energy rater who is certified under a nationally or state accredited home energy rating system (HERS). The Residential Energy Services Network (RESNET) provides a database of Certified Home Energy Raters by state.

Regional Issues:

Energy-efficient mortgages and other financing options for energy efficiency improvements are available throughout the U.S. and internationally.

Installation (Getting it Done):

The first easy step is to talk to a few local lenders and then prepare to have a certified energy rater come and conduct the analysis of your property. Your lender will also have suggestions as to energy raters who work with them on energy efficient mortgages, just as your lender has an appraiser with whom he/she works to conduct appraisals.

More Information On This Topic:

U.S. Department of Energy’s Energy Efficiency and Renewable Energy Clearinghouse: Financing an Energy-Efficient Home

U.S. Department of Energy’s Consumer Energy Information: Elements of an Energy-Efficient House

U.S. Department of Energy’s Consumer Energy Information: Professional Home Energy Audits

RESNET’S Home Energy Rating System Information

The American Recovery and Reinvestment Act of 2009 appropriated funds to each state for the establishment and administration of appliance rebate programs. The amount available to Michigan residents for refrigerators, clothes washers and dishwashers is $6,641,514. This is a first-come-first-serve rebate program launching February 10, 2010. Michigan residents who replace an existing appliance from an eligible category with a new ENERGY STAR or CEE qualified appliance after February 10, 2010 may apply for the rebate. Approved applicants will receive a Visa® Prepaid card via mail. A goal of the program is to stimulate the economy by encouraging consumers to replace old appliances with new energy efficient models. We invite Michigan residents to participate in this program and thank you for doing your share to protect our natural resources and boost Michigan’s economy. To apply for the rebate, visit the program’s website at www.MIrebates.com or call 1-866-621-8782.

When does the program start and end?
This program begins on February 10, 2010 and ends the instant the funds run out. Many Michigan residents have already begun to replace items in their homes with more energy efficient models and we expect the program to generate much interest. Therefore, we encourage participants to act quickly.

Who is eligible?
A Michigan resident with a valid Michigan residential address who replaces an existing appliance with a new eligible ENERGY STAR or CEE qualified appliance and follows the program’s requirements. All rebates will be mailed to the residential address, with no exceptions.
PO Boxes are not accepted.

How do I know if a product is ENERGY STAR or CEE qualified?
All appliances that have earned the ENERGY STAR certification feature the familiar logo on the front of the product and on the product packaging. If you are unsure, ask a sales associate or visit www.ENERGYSTAR.gov for a complete list of ENERGY STAR products and models. For a complete list of CEE qualified models, visit www.CEE1.org.

Can I receive a rebate for more than one appliance?
Michigan residents may apply for one rebate per appliance category per address. For example, one refrigerator plus one dishwasher rebate would qualify. Applications for two dishwasher rebates would not qualify.

How do I apply for the rebate?
Residents should check funds availability at www.MIrebates.com or by calling 1-866-621-8782.
Residents can then apply in two different ways:
Option 1
1. Buy an eligible ENERGY STAR or CEE qualified product.
2. Apply for a rebate at the program’s website or toll-free number.
3. Mail the required materials within 14 days of the online or phone application.
Option 2
1. Apply to reserve funds at the program’s website or toll-free number.
2. Buy an eligible ENERGY STAR or CEE qualified product.
3. Complete the application and mail the required materials within 14 days of the reservation.

Can I apply for the Michigan energy and a manufacturer’s or retailer’s rebate on the same appliance?
Yes, but keep in mind that each rebate sponsor has unique rules and application instructions. All mailed energy rebate application materials become Michigan’s property and will not be returned. Because original receipts may be required for other promotions, copies are accepted for this program.

Is appliance recycling required to qualify?
Because this is an appliance replacement program, participants must agree to replace existing appliances with a new ENERGY STAR or CEE qualified model. Recycling is encouraged, but not required. Arrangements can be made through retailers at the time of purchase.

How will applications be verified?
Every rebate application will be audited to verify the qualifying purchase and other requirements.

Eligible Appliance Category / VISA Prepaid Rebate Value

Dishwashers – ENERGY STAR rating $ 25.00
Dishwashers – CEE Tier 2 rating $ 50.00
Clothes Washers – CEE Tier 3 rating $ 50.00
Refrigerators – ENERGY STAR rating $ 50.00
Refrigerators – CEE Tier 3 rating $ 100.00

Tax Credit for Homebuyers

First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction – a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income. The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

Tax Credit Versus Tax Deduction

It’s important to remember that the $8,000 tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a tax deduction, which is a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.

Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit… and still receive a check for the remaining $4,000!

Phaseout Examples
According to the plan, the tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

To break down what this phaseout means to homebuyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:

Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.

Homes that Qualify

The tax credit is applicable to any home that will be used as a principal residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principal residence also qualify.

Higher Loan Amounts
More good news – there is an extension on the additional tier of conforming loan amounts which had been first established in 2008.  This tier of home loans applies to homes with purchase prices greater than $417,000, and with a maximum that depends on the area, but is not greater than $729,750.  These loans will again be eligible for rates that are slightly higher than conforming loan rates, but less expensive than the standard “jumbo” loan rates.

Additional Housing-Related Provisions Tax Incentives to Spur Energy Savings and Green Jobs
This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.

Landmark Energy Savings
This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.

Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing
This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs. Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section 8 housing) to increase energy efficiency, including new insulation, windows, and frames.

Expanding Housing Assistance
This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.

More Help for Homeowners in the Future

Another thing to keep an eye on in the coming weeks is President Obama’s plan to help struggling borrowers before they are faced with a default on their mortgage.

According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, final details of the plan remain subject to modification in Congress; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster.

While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That’s because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.