Tax Credit Overview
Residential New Construction Tax Credit
A $2000 tax credit for new homes that are at least 50% more efficient than required by current building codes will encourage builders (who do not pay the energy bills for the homes they build) to construct energy-efficient houses, and increase the market for efficient technologies and practices
Residential New Construction Tax Credit Requirements
Residential Existing Home Tax Credit
Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in their home can receive a tax credit of 30% up to $1500 under the Federal Tax Credits for Energy Efficiency.
Residential Existing Home Tax Credit Requirements
Commercial Tax Deduction
This 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.Heating, cooling, and lighting commercial buildings accounts for about 9% of total national energy consumption. A tax credit for new and renovated buildings that use 50% less energy than required by building codes will encourage owners to install efficient technologies and will help reduce natural gas and peak electric demand.
Commerical Tax Deduction Requirements
NC Resources
Tax credits
Step 1: Engineer your home to be 50% more efficient
Contact your local H.E.R.S. Rater:
http://www.hersrater.net/
Step 2: Use BioBased Insulation
For more information visit:
Understanding the BioBased Insulation System
Step 3: Have your home H.E.R.S. tested
For more information visit:
http://www.energystart
Step 4: Fill out IRS form 8908 and submit with your tax returns
For more information visit:
http://www.irs.gov/
Step 5: Retain your copies of the certificates from your H.E.R.S. Rater above.
TAX Credit FAQ's
- How many tax credits are there? There are two tax credits and a tax deduction. There is a tax credit for builders on new construction, a tax credit for homeowners who make energy efficient upgrades to their existing homes, and a tax deduction for commercial property owners who reduce energy consumption of their buildings.
- How does a builder get the new construction tax credit? A builder must design the house to be 50% more efficient than a model IECC home. You can use numerous approved computer software to accomplish this. You must then build the home to those specifications and have an energy rater come out at do a performance test on the house.
- How does foam insulation fit into the new construction tax credit? The tax credit requires that 1/5 of the efficiency come from building envelope components.
- Do I have to turn in new paperwork to the IRS to qualify for either of the two tax credits? No you must keep your receipts and your documentation that your home meets the standards but you do not have to file a ton of new paperwork.
- What is the new construction tax credit? Home builders are eligible for a $2,000 tax credit for a new energy efficient home that achieves 50 percent energy savings for heating and cooling over the 2004 International Energy Conservation Code (IECC) and supplements. At least 1/5 of the energy savings must come from building envelope improvements. These tax credits apply to new homes whose construction is substantially completed after August 8, 2005 and that are acquired from the eligible contractor after December 31, 2005 and before January 1, 2008, for use as a residence. Contact your senators and ask them to extend this.
- What is a tax credit? You don't receive an income tax credit when you buy the product, like an instant rebate. You claim the credit on your federal income tax form at the end of the year. The credit then increases the tax refund you receive or decreases the amount you have to pay.
- Tax credits vs. tax deductions: In general, a tax credit is more valuable than a similar tax deduction. 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. If you are in the highest 35-percent tax bracket, the income tax you pay is reduced by 35 percent of the value of a tax deduction. But a tax credit reduces your federal income tax by 100 percent of the amount of the credit.
- What energy-efficient home improvements are eligible for existing homes? The overall $500 cap can be reached in several ways with the purchase and installation of energy-efficient products:
- Exterior windows: 10 percent of the total cost, up to $200. Includes skylights and storm windows.
- Insulation, exterior doors, or pigmented metal roofs: 10 percent of the cost of the product (but not the installation), up to $500. Includes seals to limit air infiltration, such as caulk, weather stripping, and foam sealants, as well as storm doors.
- Central air conditioner, heat pump, or water heater: up to $300 towards the full purchase price, including installation costs.
- Furnace or boiler: up to $150 towards the full purchase price, and/or $50 for an efficient air-circulating fan in a furnace, including installation cost.
- When are they available? The home improvement tax credits apply for improvements "placed in service" from January 1, 2006, through December 31, 2007. They are not available in 2005. The IRS defines "placed in service" as when the products or materials are ready and available for use – this would generally refer to the installation, not the purchase.
Frequently Asked Questions for Builders
About the Energy Efficiency Tax Credits for New Homes
This is presented to provide general information on the new federal tax credit and is not intended to be an interpretation of eligibility for the tax credit. Please consult with a qualified tax advisor to discuss eligibility.
In general what allows a home to qualify for the tax credit?
To meet the energy saving requirements, a home must use no more than 50% of the energy used by a home built to 2004 International Energy Conservation Code (IECC) standards.
How does a builder determine if their homes will qualify for the tax credit?
The only way to determine if a home will qualify for the tax credit is to have an analysis done using one of the approved IRS software programs. To find the most current list of these programs, click on IRS Eligible Software Programs.
Who can qualify for the new homes tax credit?
Under the provision for energy efficient homes tax credit, an eligible contractor who constructs a qualified new energy efficient home may qualify for the credit. For specific qualifications to be eligible for the tax credit please consult with a qualified tax advisor.
What form must a builder complete the tax credit?
To claim the tax credit the eligible contractor must complete IRS form 8908. The tax form is posted on the IRS web site at www.irs.gov/pub/irs-pdf/f8908.pdf.
Is the form complicated to complete?
No. An eligible contractor simply enters the total number of qualified energy homes meeting the 50% standard and multiples that amount by $2,000.
What qualifies as a new energy efficient home?
The home qualifies for the credit if:
- It is located in the United States;
- Its construction is substantially completed after August 8, 2005;
- It meets the statutory energy saving requirements, and
- It is acquired from the eligible contractor after December 31, 2005, and before January 1, 2008, for use as a residence.
Do homes eligible for the Energy Star label also meet the requirements for the tax credit?
No. The requirements to meet Energy Star and the tax credit are different. Qualification for Energy Star covers all energy use in a house, including water heating, lighting and appliances, while requirements for the tax credit only include space heating and cooling.
Can a builder certify their own homes for the tax credit?
No. The IRS rules states that the person who certifies the home must "not related (within the meaning of 45(e)(4)) to the eligible contractor."
Who can verify homes for the tax credit?
Homes must be inspected and tested by an "eligible certifier," commonly referred to as a home energy rater. To find an eligible certifier (rater) in your area, go to www.natresnet.org
Can only home energy raters certify homes for the tax credit?
No. The IRS rules also recognizes "an employee or other representative of a utility or local building regulatory authority may qualify for as an eligible certifier if the employee or representative has been accredited or authorized by RESNET (or an equivalent rating network) to use approved energy performance measurement methods."
What verification tool is an eligible certifier (home energy rater) required to use to verify homes for the tax credit?
The IRS maintains a list of tax credit software compliance tools approved by the IRS for tax credit compliance. Go to www.irs.gov/businesses/small/industries/article/0,,id=155445,00.html
What documentation must a builder have to apply for the tax credit?
The builder must first have the home tested by an eligible certifier (home energy rater) and obtain a signed document from the eligible certifier stating the following: "Under penalties of perjury, I declare that I have examined this certification, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this certification are true, correct, and complete."
The IRS recommends that the eligible builder retain the certification as part of the contractor's records to document that the home meets the requirements.
What is the time period in which the tax credit can be claimed?
To qualify for the credit, homes must be acquired from the eligible contractor after December 31, 2005, and before January 1, 2008.
Can a homeowner apply for the tax credit?
No, only eligible contractors can apply for the tax credit.
Can homes be verified for the tax credit using the "sampling" method?
Yes. The IRS allows sampling as long as the builder builds at least 85 homes a year and the eligible certifier (home energy rater) follows the current Environmental Protection Agency's ENERGY STAR Homes Sampling Protocol Guidelines. Of course the certifier must also sign the required statement certifying the home's compliance.
Can multi-family homes be eligible for the tax credit?
Yes. The IRS defines all homes are eligible for the tax credit as long as the building is not more than three stories above grade in height.
The IRS rules state that the tax credit is $2,000 per qualifying dwelling unit. How does the IRS define a "dwelling unit"?
The IRS defines a dwelling as a "single unit providing complete independent living facilities for one or more persons, including permanent provisions for living, sleeping, eating, cooking and sanitation."
How do I find a person certified to perform the required testing and inspections to verify a home for the tax credit?
RESNET certified rater members can certify a home for the tax credit. It is not required for a person to be a RESNET member to certify a home for the tax credit.
Any certified home energy rater can certify a home for the federal tax credit. A rater must be certified by a RESNET accredited home energy rating provider. A directory of RESNET accredited rating providers by state is posted here. Contact the rating provider in your state to find the certified rater in your community.
What's the difference between a tax credit and tax deduction?
Tax deductions reduce taxpayer's overall taxable income with the value of the deduction dependent on the payer's tax bracket. Tax credits on the other hand reduce the amount of tax a taxpayer owes dollar for dollar. Tax credits are more economically powerful than deductions.