Tax benefits for energy efficient home building
September 26, 2008
A few tax benefits exist for energy-efficient builders, but most don’t weigh heavily on the decision to go “green.” Still, tax credits mean more money for home extras, so they’re worth knowing about.
The most notable incentive is a $2,000 maximum federal tax credit established through the Energy Policy Act of 2004. A Residential Energy Service Network, or equivalent, certifies homes to receive the benefit. The program provides $2,000 worth of tax credits for the construction and sale of homes achieving a 50 percent reduction in energy consumption. A manufactured home that reduces energy consumption by 30 percent would receive a $1,000 credit. The IRS allows homeowners who hire a third-party contractor for their home’s construction to realize the tax credit, as well.
The credit is also available for those meeting the stringent requirements of the federal Energy Star program. Under the program, energy-saving features typically make homes 20 percent to 30 percent more efficient than standard homes and 15 percent more energy efficient than ones built to meet the 2004 International Residential Code. Homes achieve the rating through meticulous third-party inspection, in addition to including required features such as effective insulation in floors, walls and attics, high-performance windows, tight construction and ducts and efficient heating and cooling equipment.
But the tax break is scheduled to sunset at the end of 2008, barring an extension of the program being passed by lawmakers.
A number of builders, like Sam Williams of WB Builders in Mesa County, have adopted sustainable building practices because they feel it’s the right thing to do ” the financial benefits ancillary to their overall philosophy.
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Many regional builders are signing on to the Built Green Colorado program, which compels builders to meet a number of energy-efficient benchmarks in order to gain the Built Green rating. That label provides immediate recognition that the home is built to an exceptionally efficient level ” certainly an increasingly attractive and marketable feature based on homebuyers’ growing desires to not only have a beautiful home, but also one that minimizes their environmental footprint. Some features include: advanced framing, extra insulation, a high-efficiency water heater and appliances, advanced caulking, low-pile or less allergen-attracting carpet, low VOC paints, recycled plastic lumber or plastic/wood composite lumber, laminated veneer lumber wood I-beams and I-joists and fiber cement siding.
“For a custom home builder, Built Green requirements are not that much more, compared to what we’re already doing. We’re already putting in good insulation, efficient windows, and in-floor radiant heat systems. All of those kinds of things give you points on the Built Green Colorado checklist,” says Clark Johnson of Apex Mountain Homes in Summit County.
“We’re promoting a number of ways to be energy-efficient ” using the right construction materials, choosing the right windows, the heating system that they use ” things that will matter even more in 10 to 15 years, as energy costs continue to rise,” Johnson says. “I think it makes sense for both the economics and the sustainability aspects. It’s the right thing to do for our planet, but it’s also going to save you money in the long run … and energy costs associated with non-renewable fossil fuels aren’t ever going to go down.”
Ultimately, builders who adapt their practices to either the statewide Built Green Colorado program or the federal Energy Star series realize the value in building to the pricier efficiency codes.
“Homes that have the Energy Star or Built Green label are just much higher quality homes. Those rating programs blow regular building codes away,” Williams says.
Making money with solar
If the altruistic benefits of efficient building aren’t tangible enough, then take a look at solar energy. There are generous federal, as well as municipal, tax credits available. For example, homeowners can obtain a credit for 30 percent of the tax basis of any equipment involved in generating solar energy. But, unless the law changes, that credit will decrease to 10 percent in 2009. Still, solar equipment can be depreciated, which amounts to savings.
At the utility level, you could be generating your way out of rising energy costs.
Customers of Xcel Energy can take advantage of a program in which the company will buy back power generated from home solar systems. Homeowners install up to 10 kilowatts of solar generated power, tie that system to the grid, and enter into an interconnection agreement with Xcel. The limit allows installation of up 120 percent of a home’s overall power consumption.
“The benefit of the grid-tied interconnection is, you’re offsetting your consumption as you go. You’re using your solar power from your own production system first, then any excess over and above what you consume is purchased by Xcel at wholesale rates,” explains Jeff Evans, with Simplicity Solar in Grand Junction.
In addition to the Xcel program, federal tax credits associated with solar are available, including a $2,000 benefit for residential solar systems, and even credits of up to $1,000 for related systems like solar water heaters.
But like the federal efficient building tax credit, the renewable energy tax credits established by Congress are also set to expire at the end of this year, and it is uncertain whether lawmakers will extend the benefits beyond 2008.
“There are a lot of problems at the federal level in keeping those credits in place,” Evans says. “Conservatives are trying to do away with all of the renewable energy advantages.”
More locally, a number of municipalities across the state offer their own solar incentives. On the Front Range, Boulder requires access to sunlight in new buildings by setting limits on the amount of shading in new construction. In Aspen, people can get zero-interest loans and rebates on new solar thermal and electric equipment.
Precisely where you live will impact whether or not you can take advantage of a utility buy-back program like Xcel’s, however. The rural electric associations that generate power for communities outside of Xcel’s service area have their own solar programs. The Delta-Montrose Electric Association offers a $2 per watt rebate up to $3,000, Holy Cross Energy in Aspen offers a similar program, and Grand Valley Power is also developing a trial program.
But, in general, it’s hardly ever just about the money. When it comes to custom homes, it seems the groundswell of builders who are constructing highly energy-efficient, ecofriendly homes are doing it for altruistic, as opposed to financially beneficial, reasons.
“We’re building energy-efficient and sustainable homes because they’re much better quality, not because of any tax benefits that might be out there,” Williams says.
Williams’ company builds just a few homes each year, “so (the available tax breaks) could potentially help us out, but it’s not a huge incentive,” he says, adding: “Besides, any savings we could realize, we’d turn around and give that right back to the homeowner.”