WASHINGTON, May 5 -- Homeowners 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 Existing Home Retrofit Tax Credit (25C) tax credit helps consumers save two ways: on their costs and on their ultilty bills.
"Remodelers can help find the best methods of saving energy in your home with an assessment, like a home energy audit," explained 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 percent 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 and doors and insulation as long as the new products meet IRS qualifications. In some cases, installation costs may also be used 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 homeowners may be able to combine federal tax credits with local and regional incentives to maximize savings.
Here's one example: Insulation improvements may be one of the easiest and most affordable ways to save on energy costs. Upgrading inefficient insulation (from R-19 to R-38) in the attic of a two-story, 2,000-square-foot Chicago home might cost around $1,000, but the tax credit brings that down to $700. Add that to Chicago's MidAmerican Energy residential energy efficiency rebate program, which can return up to $600 spent on insulation or other energy-efficiency upgrades, and the cost drops to $100 - meaning a two-year payback period for the $51 estimated annual utility savings for this project.
Inspecting the ductwork, caulking and heating and cooling systems for possible upgrades or enhancements also help to provide additional energy savings, Miedema said.
Homeowners also can use the tax credit for heating and cooling components. For example, upgrading a standard 10-year old air conditioner to today's federal minimum 13-SEER (Seasonal Energy Efficiency Ratio) model may 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 homeowner the $1,500 energy-efficiency federal tax credit. Plus, 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 homeowner may enjoy utility bills savings for years to come.
With the credit, tankless water heaters are comparable in cost to traditional gas water heaters, but last as long as 20 years and are 30 percent 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 may also save with less frequent replacements. When the credit is included, homeowners can save $100 per year on their water heating expenses, he added.
"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. "Homeowners 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 to determine likely costs of upgrades and savings. Information on rebates from utility companies and other state and local government incentives is available.
In addition to expanding the 25C tax credit, the Wind, Solar, Geothermal and Fuel Cell Tax Credit (25D) 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 percent and there is no cap on their cost through 2016. Taxpayers can claim the credits on IRS Form 5695. Learn more about the tax credit.