Residential Energy Credits for Certain Home Improvements Reinstated & Expanded for Tax Year 2009

The "American Recovery and Reinvestment Act of 2009" increases the residential energy tax credit for homeowners who make certain energy efficient improvements to their primary residence.

The new law increases the tax credit rate to 30% of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in years 2009 and 2010.

A similar energy tax credit was available for year 2007 which had a lifetime maximum credit limit of $500. This energy tax credit was not available in year 2008.

The energy tax credit applies to improvements such as adding insulation, energy-efficient exterior windows and doors and energy-efficient heating and air conditioning systems.

Homeowners should be aware that the standards in this new tax law are higher than the standards for the credit that was available in year 2007 for items that qualify as “energy efficient” for purposes of this tax credit. These changes will take effect for property placed in service AFTER February 17, 2009, except for the change regarding "biomass fuel stoves."

Insulation must meet the prescriptive criteria for that material or system established by the 2009 International Energy Conservation Code, as in effect on February 17, 2009.

Metal Roofs must contain the appropriate pigmented coatings designed to reduce heat gain.

Asphalt Roofs must contain the appropriate cooling granules (which meet the Energy Star requirements) designed to reduce heat gain.

Exterior Windows, Skylights, and Doors must have a U factor equal to or below 0.30 and a solar heat gain coefficient (SHGC) of 0.30.

Electric Heat Pumps must meet the following standards:

• A seasonal energy efficiency ratio (SEER) greater than or equal to 15, energy efficiency ratio (EER) greater than or equal to 12.5, and heating seasonal performance factor (HSPF) greater than or equal to 8.5 for split heat pumps, OR

• A SEER greater than or equal to 14, EER greater than or equal to 12, and HSPF greater than or equal to 8.0 for packaged heat pumps.

Central Air Conditioners must meet the following standards:

• A SEER greater than or equal to 16 and EER greater than or equal to 13 for split systems, OR

• A SEER greater than or equal to 14 and EER greater than or equal to 12 for packaged systems.

Natural Gas, Propane, or Oil Water Heaters must have either an energy factor of at least 0.82 or a thermal efficiency of at least 90%.

Biomass Fuel Stoves that burn biomass fuel to heat a dwelling unit that the taxpayer uses as a residence, or to heat water for use in the residence, and that has a thermal efficiency rating of at least 75%. This is effective January 1, 2009.

Furnaces and Boilers may fall into six separate categories:

1. A “qualified natural gas furnace” will mean any natural gas furnace that achieves an annual fuel utilization efficiency rate of not less than 95.

2. A “qualified propane furnace” will mean any propane furnace that achieves an annual fuel utilization efficiency rate of not less than 95.

3. A “qualified oil furnace” will mean any oil furnace that achieves an annual fuel utilization efficiency rate of not less than 90.

4. A “qualified natural gas hot water boiler” will mean any natural gas hot water boiler that achieves an annual fuel utilization efficiency rate of not less than 90.

5. A “qualified propane hot water boiler” will mean any propane hot water boiler that achieves an annual fuel utilization efficiency rate of not less than 90.

6. A “qualified oil hot water boiler” will mean any oil hot water boiler that achieves an annual fuel utilization efficiency rate of not less than 90.

Residential Energy Efficient Property Credit Limitations (REEP)

Individual taxpayers are allowed a nonrefundable personal tax credit, known as the residential energy efficient property (REEP) credit, for 30% of expenditures made during the tax year for qualified solar water heating, geothermal heat pump, fuel cell, small wind energy, and solar electric property.

Previously, the REEP credit for a tax year was limited to:

• $2,000 for qualified solar water heating property;

• $2,000 for qualified geothermal heat pump property;

• $500 for each 0.5 kilowatt of capacity of qualified fuel cell property; and

• $500 for each 0.5 kilowatt of capacity (not to exceed $4,000) of qualified small wind energy property.

There is no dollar limit for solar electric property after year 2008. The new law eliminates the REEP credit caps for qualified solar water heating, geothermal heat pump, and small wind energy property, while retaining the credit cap for qualified fuel cell property.

NOTE: The credit for qualified solar energy property and qualified solar water heating property applies to both your primary residence and vacation home.

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