Why the 25E Residential Performance Tax Credit Matters

By Jeff Kaliner

Federal tax credits for residential energy efficiency projects aren’t new to the home remodeling industry. The recent credits for windows and doors that were valid in 2010 and 2011 gave our industry a boost when the stinging memory of 2008 made consumers nervous to invest in their homes. Green home projects helped homeowners ease back into investing in their property because of the return on investment, lower utility bills, and increased resale value they promised. Now that we’re seeing more stability in the market in 2012, another exciting tax credit is on the horizon – the 25E Residential Performance Tax Credit.

25E is exciting because it provides consumers the opportunity to see the drastic impact of energy efficient upgrades for the first time. Instead of deciding to embark on green projects solely based on a hope that utility bills will be lowered or a feeling of being environmentally conscious, we’ll have concrete, undisputable proof of the effectiveness of these projects in achieving energy efficiency in the home. This evidence acts as a revolutionary proof point for our business as we look to the future of the home improvement industry, so it’s important to understand the ins and outs of this groundbreaking bill.

Below, I outline the reasons why I think the 25E Residential Performance Tax Credit matters, and why you should continue to pay attention as we wait for Congress to decide its fate:

BPI accreditation is key. To qualify for the credit, taxpayers must enlist a BPI accredited company or a RESNET certified Energy Smart Home Performance Team to establish a baseline energy use of the home. When the project is wrapped up, energy use will be measured again and the homeowner’s tax credit will depend on the percentage that energy efficiency was increased.

Know which projects qualify. Energy efficiency from appliances won’t qualify for the tax credit, so the credit is solely geared toward home remodeling and renovation. The tax credit is only based on the reduction of energy use from heating, cooling and hot water. Understanding all the projects that affect these three areas is important to ensuring homeowners are totally sealing the shell of their home so they can get the most bang for their buck.

Understand the math. Previous tax credits only reimbursed taxpayers up to $1,500 for energy efficiency projects, so the increased deduction limit of 25E is another exciting change. The amount that a taxpayer can claim is equivalent to the percentage that energy use is reduced in their home, up to $5,000 or 30 percent of the total job cost for the installed measures.

The 25E tax credit is a piece of government policy that can drastically affect our industry if it is passed in Congress. This type of policy is the center of daily conversation across the country with the presidential election just a few weeks away, so let’s reinvigorate the conversation around this and other policies that can help boost our industry. What is your opinion about the 25E Performance Tax Credit?