Tax Incentives for Energy Efficient Construction

 

Tax Credits for Residential Construction - Builders:

The Internal Revenue Service (IRS) has provided the following guidance regarding the tax credits for constructing energy efficient new homes available under the Energy Policy Act of 2005:

IRS Notice 2006-27 provides guidance for securing a tax credit for building energy efficient homes other than manufactured homes.

The tax credit information is based on information contained in the Energy Policy Act of 2005. The IRS guidance provides specific information that home builders and housing manufacturers can rely on to take action to claim the tax credits.

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. This credit also applies to contractors of manufactured homes conforming to Federal Manufactured Home Construction and Safety Standards.

There is also a $1,000 tax credit to the producer of a new manufactured home achieving 30 percent energy savings for heating and cooling over the 2004 IECC and supplements (at least 1/3 of the savings must come from building envelope improvements), or a manufactured home meeting the requirements established by EPA under the ENERGY STAR program.

These tax credits apply to new homes located in the United States 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.

IRS Form 8908 & Instructions has been published by the IRS as the form application for the tax credit.

Tax Credits for Residential Construction - Consumers:

The Internal Revenue Service (IRS) has provided guidance for consumers: IRS Notice 2006-26. Tax credits are available for many types of home improvements including adding insulation, replacement windows, and certain high efficiency heating and cooling equipment. See chart. The maximum amount of homeowner credit for all improvements combined is $500 during the two year period of the tax credit. This tax credit applies to improvements made from January 1, 2006 through December 31, 2007.

Tax Credits for Commercial Buildings:

A tax deduction of up to $1.80 per square foot is available to owners or designers of new or existing commercial buildings that save at least 50% of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001. Partial deductions of up to $.60 per square foot can be taken for measures affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems. These deductions are available for buildings or systems placed in service from January 1, 2006, through December 31, 2007.

IRS Notice 2006-52 (6/2/2006) provides guidance on deduction for energy efficient commercial buildings
ENERGY STAR Brochure for Commercial Tax Deductions
Commercial Building Tax Deduction Coalition

Additional resources:

Tax Incentives Assistance Project (TIAP)
Energy Bill (full text)

Energy Efficient Mortgages

 

Tax Credits for Commercial Buildings:

An Energy Efficient Mortgage (EEM) is designed to consider the savings associated with energy-efficient construction and/or products in the approval and qualifying process. An EEM recognizes that the reduced utility and insurance costs associated with an ICF home means a larger portion of the borrower's monthly income can be applied to the monthly mortgage payment. ICF homes cost less to own than conventionally built homes, even though the initial cash outlay for construction or purchase is higher.

Example (2,500 square foot home)	Conventionally built home	NUDURA home
Home price	$200,000	$210,000
Loan Amount (20% down payment)	$160,000	$168,000
Monthly Payment*	$1,119	$1,175
Energy Bills**	$250	$150
Homeowner's Insurance***	$250	$150
True Monthly Cost of Ownership	$1,542	$1,446
Monthly Savings		$96

* Estimated mortgage payments are based upon principal and interest only at 7.5% and do not include taxes and insurance. Values indicated here are for example only and will vary from home to home.
** Utility rate based on an average cost of $0.10 per square foot. NUDURA rate reflects a 40% reduction in energy consumption.
*** Texas Department of Insurance average for a new brick veneer home is $0.83 per square foot (at $80 sf valuation). NUDURA rate is based on a 30% reduction in premiums from use of ICF construction.

The savings generated in this example home at today's energy prices is $96 a month, or $1,152 per year, even when considering the additional up-front costs of building a NUDURA home. ICF construction.

Check with your lender to see if they offer Energy Efficient Mortgages for ICF construction. If you lender needs additional information about NUDURA ICF Building Technology, contact FutureStone for assistance.

Other Programs

 

Other opportunities to save are provided by some utility companies. Contact your local utility company to find out about any energy efficiency rebates, incentives and programs the company may offer for builders or owners.

Resources:

Database of State Incentives for Renewable Energy (DSIRE)
The Alliance to Save Energy