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Department of the Treasury Releases Rules for Federal Residential Energy Efficiency Tax CreditsCongress Extends Tax Incentives for Energy
Efficient Homes and Commercial Buildings The IRS has issued the rules for the new federal tax credits for residential energy efficiency available under the Energy Policy Act of 2005. Energy Efficient HomesUnder the provision for energy efficient homes, an eligible contractor who constructs a qualified new energy efficient home may qualify for a credit of up to $2,000. The credit is available for all new homes, including manufactured homes constructed in accordance with the Federal Manufactured Homes Construction and Safety Standards. The home qualifies for the credit if:
In general, 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 Supplement 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.
Click on Notice 2006-27 for the IRS guidance for the tax credit for building energy efficient homes other than manufactured homes. The IRS rules states that "An eligible certifier is a person that is not related (within the meaning of § 45(e)(4)) to the eligible contractor and has been accredited or otherwise authorized by RESNET (or an equivalent rating network) to use energy performance measurement methods approved by RESNET (or the equivalent rating network). An employee or other representative of a utility or local building regulatory authority may qualify as an eligible certifier if the employee or representative has been accredited or otherwise authorized by RESNET (or an equivalent rating network) to use the approved energy performance measurement methods". To download the RESNET procedures click on Procedures for Certifying Residential Energy Efficiency Tax Credits for New Homes. RESNET has amended the procedures to incorporate the normalized modified loads calculation of energy use and has published the revised document RESNET Publication No. 06-001. The IRS has announced that it will accept verification of homes calculated through the method contained in RESNET Publication No. 05-001 or RESNET Publication No. 05-006. To download the IRS announcement click on Standards for Calculating Energy Savings for the New Energy Efficient Home Credit. Internal Revenue Code 45L. In order to provide clearer guidance in complying with the RESNET Procedures for Certifying Residential Energy Efficiency Tax Credits the RESNET Board of Directors adopts and posts formal interpretations on the procedures. To view these interpretations click on RESNET Interpretations on Procedures for Certifying Residential Energy Efficiency Tax Credits. For a listing of RESNET accredited providers click on National Directory of Accredited Rating Providers. The IRS Notive 2006-27 states that the IRS would recognize organizations "otherwise authorized" to verify a home's energy performance for the tax credit. For a listing of organizations that have been otherwise authorized by RESNET click on Organizations Otherwise Authorized by RESNET. The RESNET Board of Directors have adopted a policy that would govern proposals for prescriptive programs for verification of homes for the tax credit for energy efficient homes. To view the new policy click on RESNET Policy on Conducting and Documenting Worse-Case Analysis. To learn how to apply for a software program to become accredited as a tax credit compliance software tool click on How to have a tax credit compliance tool accredited by RESNET. To view the software tools that have been accredited by RESNET as a tax credit compliance software click on Accredited Tax Credit Software Tools. RESNET now requires that the rating firm/individual must also carry professional liability insurance in the amount of at least $500,000. The rater will have to provide a signed statement to RESNET declaring this coverage. This statement also includes language that states the rater's or rater company's awareness that falsifying the certification of a home for the tax credit can lead to sanctions up to and including the loss of the ability to certify homes for the tax credit in the future. To view the new requirement click on Requirements to Certify the Energy Efficient Homes Credit. Click on Notice 2006-28 for guidance for the credit for building energy efficient manufactured homes. Click on Energy Efficient Home for the IRS tax form (Form 8908) to down load the form to calculate the tax credit for energy efficient homes. Click on IRS Eligible Software Programs for the IRS' web site of approved tax credit software compliance tools. Frequently Asked Questions for Builders About the Energy Efficiency Tax Credits for New Homes The Energy Policy Act of 2005 established a federal tax credit for builders for each homes that exceeds the energy performance threshold spelled out in the 2004 International Energy Conservation Code. There has been a question whether builders could economically achieve the energy performance threshold to qualify for the tax credit. To provide real life examples of homes that have met the tax credit RESNET has posted examples of homes that have qualified for the tax credit in a variety of regions across the nation. To view these documents click on examples of homes qualifying for federal tax credit for energy efficient homes. Existing HomesDuring 2006, individuals can make energy-conscious purchases that will provide tax benefits when filling out their tax returns next year. The credit will also be available for purchases in 2007. Manufacturers offering energy efficient items such as insulation or storm windows can assure their customers that their energy efficient items will qualify for the tax credit if certain energy efficiency requirements are met. A recent tax law change provides a tax credit to improve the energy efficiency of existing homes. The law provides a 10 percent credit for buying qualified energy efficiency improvements. To qualify, a component must meet or exceed the criteria established by the 2000 International Energy Conservation Code (including supplements) and must be installed in the taxpayer’s main home in the United States. The following items are eligible:
In addition, the law provides a credit for costs relating to residential energy property expenses. To qualify as 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 United States. The following items are eligible:
The maximum credit for all taxable years is $500 – no more than $200 of the credit can be attributable to expenses for windows. Additionally, the new law makes a credit available to those who add qualified solar panels, solar water heating equipment, or a fuel cell power plant to their homes in the United States. 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. Taxpayers are allowed one credit equal to 30 percent of the qualified investment in a solar panel up to a maximum credit of $2,000, and another equivalent credit for investing in a solar water heating system. No part of either system can be used to heat a pool or hot tub. Additionally, taxpayers are also allowed a 30 percent tax credit for the purchase of qualified fuel cell power plants. The credit may not exceed $500 for each .5 kilowatt of capacity. These items must be placed in service after Dec. 31, 2005 and before Jan. 1, 2008. Click on Notice 2006-26 for guidance to the existing homes credit Commercial BuildingsThis provision offers business taxpayers a deduction of $1.80 per square foot for commercial buildings that achieve a 50% reduction in annual energy cost to the user, compared to a base building defined by the industry standard ASHRAE/IESNA 90.1-2001. Energy costs refer only to heating, cooling, lighting and water heating, since only these uses are within the scope of the ASHRAE standard and within the control of the building designer. Each of the three energy-using systems of the building — the envelope, the heating, cooling and water heating system, and lighting system — is eligible for one third of the incentive if it meets its share of the whole-building savings goal. Explicit interim compliance procedures are provided for lighting. Eligible buildings include commercial buildings such as: offices, retail buildings, warehouses, etc., rental housing of four stories or more, and publicly-owned buildings. For publicly-owned buildings, there is an interesting provision allowing the credit to pass through to the "person primarily responsible for designing the building." New construction in an existing building is also eligible for the tax deduction, with one third of the deduction amount for new construction that affects the new energy-using system (such as lighting or heating, cooling and water heating). Click on Notice 2006-52 for guidance to the commercial buildings deduction. Other Tax Credit Resources |
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