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Tax Credits, Rebates Cut Costs of Improving Energy Efficiency

Home owners now can claim up to $1,500 in expanded energy-efficiency tax credits for remodeling their principal residence to reduce energy consumption. Available until the end of 2010, the revamped 25C Existing Home Retrofit Tax Credit helps consumers save on their renovation costs and ultilty bills.

"Remodelers can help find the best methods of saving energy in your home with an assessment, like a home energy audit," said NAHB Remodelers Chairman Greg Miedema, CGR, CGB, CAPS, CGP, a remodeler from Tucson, Ariz. "Tightening the house to reduce air leakage by adding insulation, fixing ducts and installing a more efficient heating and air conditioning system can help save on energy bills today while also reducing next year's tax bill."

The expanded federal tax credit refunds 30% of the product replacement cost, up to a total of $1,500. It can be used not only for HVAC systems, insulation and water heaters but also for windows, doors and insulation as long as the new products meet IRS qualifications. In some cases, installation costs may also be applied to claim the tax credit.

Home energy audits can cost as little as $500, which remodelers say is an expense that pays for itself — and more — with savings from efficiency upgrades. And home owners may be able to combine federal tax credits with local and regional incentives to maximize savings.

For example, the typical $1,000 cost of upgrading inefficient insulation (from R-19 to R-38) in the attic of a two-story, 2,000-square-foot Chicago home can be reduced to $700 when the tax credit is taken. Adding Chicago's MidAmerican Energy residential energy efficiency rebate program, which can return up to $600 on insulation or other energy-efficiency upgrades expenditures, can drop the cost of the insulation improvement job to a net $100, resulting in a two-year payback period for the $51 estimated annual utility savings resulting from this project.

Inspecting ductwork, caulking and the heating and cooling systems for possible upgrades or enhancements can also help find additional energy savings, Miedema said.

In an example of how the tax credit can be used for heating and cooling, upgrading a standard 10-year-old air conditioner to today's federal minimum 13-SEER (Seasonal Energy Efficiency Ratio) model can cost about $5,500 in Phoenix, but does not qualify for the tax credit. Spending as little as $2,000 more for a higher-efficiency air-conditioner (such as 16-SEER) earns the home owner the full $1,500 energy-efficiency federal tax credit. In addition, the local power company provides a rebate starting at $425. With the tax credit and utility rebate, the cost difference can be paid back in a couple of years, while the home owner enjoys utility bills savings for years to come.

With the credit, tankless water heaters are comparable in cost to traditional gas water heaters, but they last as long as 20 years and are 30% more efficient, according to Eugene Lamana, residential business manager at Rinnai, a manufacturer of tankless water heaters and other gas appliances based in Peachtree City, Ga. Savings depend on local energy prices, but home owners will realize further savings by reducing the frequency of equipment replacements. When the credit is included, home owners can save $100 per year on their water heating expenses, he said.

"These are just some examples of how the energy-efficiency tax credit helps consumers save money in making home improvements and cutting down utility bills," said Miedema. "Home owners should contact a professional remodeler near them for advice on installing tax credit-qualified improvements in their home."

Home owners can use an energy-savings simulation from the NAHB Research Center at http://energysim.toolbase.org to determine likely costs of upgrades and savings. Information on rebates from utility companies and other state and local government incentives is available at www.dsireusa.org.

In addition to expanding the 25C tax credit, the 25D Wind, Solar, Geothermal and Fuel Cell Tax Credit for renewable energy products now provides larger incentives for installing geothermal heat pumps, solar panels, solar hot water heaters, small wind energy systems and fuel cells. Although the upfront costs are high for these products, the tax credit is 30% and there is no cap on their cost through 2016. Taxpayers can claim the credits on IRS Form 5695.

For more information about the tax credit, visit www.nahb.org/efficiencytaxcredit.

For further information, e-mail Kelly Mack at NAHB, or call her at 800-368-5242 x8451.

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