U.S. homeowners have just one month to utilize a soon-to-expire federal tax credit aimed at encouraging home energy efficiency. The tax credit, created by the Energy Policy Act of 2005, allows for a tax credit of up to 10 percent of the cost of materials for certain home improvements, including installing ENERGY STAR®-qualified windows, attic insulation or air sealing products. This part of the act, which offers a tax credit of up to $500 per household, was not extended by Congress this year.
While it appears that many homeowners are aware of the federal tax credit, only 23 percent had actually taken advantage of it during 2006, according to a survey conducted earlier this year by Opinion Research Corporation, an independent research firm, on behalf of Johns Manville, the Denver-based building products manufacturer. The survey also found that only 32 percent of homeowners believe that their home is energy efficient, despite the fact that 78 percent of homeowners reported that their 2006 heating and cooling costs had increased.
As consumers scramble to take advantage of the credit before it expires, Johns Manville has created a list of five ways homeowners can reap the most economic benefits from the tax credit while improving the energy efficiency and comfort of their homes.
Top Five Ways to Take Advantage of the Home Energy Efficiency Improvement Tax Credit
- Add attic and/or basement insulation. The U.S. Department of Energy estimates that 40 percent of all air leaks in the average home are in the attic, and homeowners can expect to see up to a 30 percent savings on heating and cooling costs with a well-insulated and air-sealed home. Adding insulation is one of the easiest and most cost-effective ways for homeowners to take advantage of the tax credit. By purchasing insulation, homeowners can improve their home’s thermal envelope and decrease monthly energy bills for an immediate return on investment. A majority of homes in the U.S. are under-insulated, and most need up to 18 inches of attic insulation to guarantee proper thermal efficiency.
- Install or replace exterior windows and skylights with energy-efficient versions. All ENERGY STAR-qualified windows and skylights are eligible for the tax credit and aid the overall energy efficiency of a home by keeping out extreme temperatures and maintaining the overall comfort of a home. The maximum tax credit benefit for installing windows or skylights is $200.
- Trade in older storm doors and exterior doors for newer, energy-efficient versions. An older or poorly insulated exterior door can significantly contribute to air leakage. By replacing the exterior door or adding a storm door to an existing door, homeowners can better maintain the overall temperature of a home and reduce cold drafts or energy leaking out of the home.
- Replace an old furnace. Homeowners can replace an existing furnace with a replacement gas or oil furnace with an Annual Fuel Utilization Efficiency (AFUE) rating of 95 percent or higher. Purchasing an energy-efficient furnace reduces the impact of energy pollution and promotes cleaner air quality while enhancing the comfort of a home.
- Install a solar energy system. While the overall investment is greater, purchasing solar photovoltaic systems or solar water heaters offers a tax credit of 30 percent (up to $2,000) of the cost of materials and carries the greatest tax credit available. Solar energy systems provide homeowners with a low-cost alternative to traditional energy sources by generating energy directly from sun light. Systems must be placed in service between January 1, 2006 and December 31, 2007.
The home energy efficiency improvement tax credit was created as part of the Energy Policy Act of 2005 in response to record high energy prices. According to the U.S. Energy Information Administration’s Annual Energy Outlook 2007, energy prices are expected to steadily increase through 2030.
To redeem the federal energy efficiency home improvement tax credit, homeowners must provide a Manufacturer’s Certification Statement, purchase receipt and use IRS Form 5695. For more information regarding qualifying products, visit JMHomeowner.com or the Alliance to Save Energy Web site.
“Homeowners will receive an immediate and continuous return by improving upon their home’s energy efficiency,” said Scott DeShetler, marketing communications manager for Johns Manville’s Insulation Systems Group. “Insulation provides relief from rising energy costs, and it also adds to a home’s value when it comes time to sell. According to the U.S. Energy Information Institute, adding insulation and air sealing increases a home’s resale value, and 55 percent of Americans are willing to pay more for a home with energy-efficient features.”
Installing insulation in an attic can be an easy, do-it-yourself project for even the most novice weekend warrior. Homeowners can also hire an insulation contractor to complete the project, although installation costs cannot be deducted as part of the energy tax credit. JMHomeowner.com provides a complete list of products and installation tips, as well as a contractor locator to locate a certified contractor in their area.
Homeowners can also utilize a number of tools to assess a home’s overall energy efficiency and identify home-improvement projects to improve the energy-efficiency performance of their home. JMHomeowner.com offers a Home Energy Analysis tool for consumers to evaluate their home’s energy efficiency through a step-by-step evaluation of their home’s specifications and provides the homeowner with a report that includes a series of recommendations to increase energy. ENERGY STAR provides information on performing a “do-it-yourself” energy audit with the Home Energy Yardstick, using basic home information and past utility bills. A professional home energy auditor can also be hired to provide specific recommendations to improve energy efficiency using a variety of evaluation techniques and equipment. For more information on locating a Home Energy Rater, visit the Web site or contact your local electric or gas utility provider.