Orlando Florida Real Estate and Homes for Sale

New 2009 Consumer Energy Tax Incentives

President Barack Obama signed the 1,073-page "stimulus" act into law on Feb. 18, 2009. The tax section is entitled "American Recovery and Reinvestment Tax Act of 2009" and includes several provisions that modify and expand the scope of the energy efficiency and renewable energy incentives.

The strategy behind these tax incentives is to improve the overall energy efficiency of the existing housing stock. It was realized that improvements in energy building codes for new construction was not reducing energy consumption enough to meet Federal goals and guidelines established by the Department of Energy. Why? The average existing home was constructed in 1976 and many were built long before that. This was long before any state or federal energy building code existed. This large stock of existing homes use a tremendous amount of energy, very wastefully. In many sunbelt states single pane windows are common, walls are under insulated, furnaces and water heaters are old and inefficient. The 2005 tax incentive bill was enacted to provide a "carrot" or incentive for homeowners to upgrade their windows, change out their furnace and install more energy saving insulation and weatherstripping.

The "carrot" however was perceived as too small to be much of an incentive, or even noticed by most. According to a recent survey, just 23% of American homeowners took advantage of federal tax credits for energy-efficient home improvements in 2006. This, despite the fact that 78% of homeowners surveyed reported that their heating and cooling costs increased by 5% or more in 2006, and a full 74% of homeowners knew the credits were available under the Energy Policy Act of 2005. The shortcomings of this initial incentive programs were obvious, the incentives need to be increased if they could realistically be expected to provide the push needed to motivate homeowners to action. The new 2009 Energy Efficiency Tax Incentives provide a much larger and attractive "carrot". Some examples:

• Replacement windows/doors/skylights with U-factor, SGHC 0.30: Tax credit of 30% of the cost, up to $1,500
• Upgraded insulation that meets 2009 IECC minimum guidelines: 30% of cost up to $1,500
• HVAC with a 95% AFUE furnace and 16 SEER A/C: 30% of cost up to $1,500
• Replacement Tankless water heater with an energy factor of 82%: 30% of cost up to $1,500
• Solar Water Heater: 30% of cost with no cap
• Photovoltaic Systems: 30% of cost with no cap

A key restriction is the $1,500 cap on window, insulation, HVAC, water heater costs. This the maximum tax credit for all of these improvements combined. There is no maximum credit cap for solar water heaters or photovoltaic systems, a simple 30% of whatever the total system cost is your tax credit.

It's important to note that these are tax credits, not tax deductions. A tax credit reduces your federal tax liability directly. Subtracted from your tax liability (taxes owed), it's taken after all other reductions are made. A tax deduction, by contrast, provides tax relief in a more oblique manner. A tax credit reduces the tax you pay, dollar-for-dollar. Tax deductions—such as those for home mortgages and charitable giving—lower your taxable income.

These upgrades and improvements must be "placed in service" from January 1, 2009 through December 31, 2010 and the home must be the taxpayers primary place of residence. Improvements made in 2009 will be claimed on your 2009 taxes using IRS Tax Form 5695 (2009 version) This form should be available late 2009 or early 2010.

The new program also includes improvements to existing commercial buildings but involve a different method of calculating the incentive which is a tax deduction, not a tax credit. Instead of an itemized list of qualified upgrades, existing commercial building owners need to demonstrate that the building overall will perform 50% better after all the energy saving improvements which can include window, door, insulation upgrades, HVAC replacement, and more efficient lighting fixtures. This will require a energy use simulation calculation to establish the energy consumption of the building before and after the upgrades to demonstrate the 50% improvement in overall energy efficiency of the building. The tax incentive using this approach is $1.80 per square foot. These tax deductions are available for upgrades placed in service between January 1, 2006 through December 31, 2013.