Get money off your taxes for improvements that deliver energy savings

Sat, 03/28/2009 – 20:06 — Tom Kraeutler
If energy-saving home improvements top your list for 2010, Uncle Sam likewise has plans to reward you with valuable energy efficiency tax credits. Thanks to the American Recovery and Reinvestment Act of 2009 (ARRA), you once again have the opportunity to earn up to $1,500 in one-time credits with upgrades that provide in-home comfort, reduce air pollution and deliver energy savings long after your tax return has been submitted.

Here’s how it works: Purchase and install any combination of qualifying products at your primary residence by December 31, 2010, and with the help of IRS Form 5695, purchase receipts and manufacturer certifications (e.g., the Energy Star label for windows), and your tax adviser’s guidance, apply for credits equal to 30 percent of the cost–and, in some cases, the installation–of each qualifying product you’ve purchased.

Energy efficiency tax credits can be more valuable than similar tax deductions, as credits reduce the dollar-for-dollar amount of tax you pay while deductions lower your taxable income, so this is one deal you don’t want to pass up. And remember when similar incentives were offered during the 2006 and 2007 tax years? If you earned up to but claimed less than the energy efficiency tax credit limit back then, you’ll be able to claim the unused portion in the coming year (once again, consult your tax adviser for details). Local utility and state rebates may compound your savings, and can be found in the DSIRE database of state incentives.

Consider the following energy-saving products for your 2009 home improvement plans, and build a strategy that’ll trim your taxes as well as ongoing energy costs.

Exterior windows, storm windows and skylights: All Energy Star windows qualify and can earn energy efficiency tax credits equal to 30 percent of their cost, up to $1,500 total.

Insulation, exterior doors or roofs: You can earn credits equal to 30 percent of the costs of these products (exclusive of their installation), once again up to $1,500 total. Storm doors are among the entry options that qualify, and insulation solutions include caulking, weatherstripping, foam sealants and other seals that limit air infiltration. Doors and insulation must meet the requirements for your region of the 2001 or 2004 International Energy Conservation Code, the model energy code for buildings. Qualifying roofs must be metal with pigmented coatings or asphalt with cooling granules that meet Energy Star requirements.

Central air conditioner, heat pump, water heater or bio gas (e.g., corn) stove: These qualify for up to 30 percent toward the full purchase price, including cost of installation. Also note a key difference in this credit category compared with prior years: For 2010, geothermal heat pumps are eligible for a separate tax credit, with no cap on the dollar amount of credits you can earn based on 30 percent of the heat pump’s cost. Only Energy Star geothermal heat pumps qualify, and they must be placed in service by December 31, 2016.

Furnace or boiler: To qualify for a 30 percent energy efficient tax credit on product cost and installation, natural gas, propane or oil furnaces and boilers must have at least a 95 percent annual fuel utilization efficiency.

Finally, a few general notes to remember as you plan purchases. Strict criteria apply to eligible heating and cooling equipment, so consult the guidelines as provided by the Alliance to Save Energy to ensure your selection will make the cut and earn an energy efficiency tax credit. Qualifying windows, doors, roofs and insulation must be expected to last at least five years (sufficiently demonstrated by the accompaniment of a two-year warranty). And keep in mind that improvements made within condos and co-ops are apportioned to the owners, and energy efficiency tax credits can’t be taken against the Alternative Minimum Tax (AMT).

Marv Beloff stands near the house he built in Middlefield eight years ago, which he heats and cools with a geothermal system. The system uses groundwater that is piped up at a consistent 50-55 degrees and is run through a heat pump in which a conversion/exchange takes place, providing heated or cooled water, using the earth’s natural thermal energy. (CLOE POISSON / HARTFORD COURANT / April 2, 2010)

By MARA LEE The Hartford Courant

April 11, 2010

Geothermal heating and cooling systems work just as caves do: The temperature underground is more moderate than the air above. If it’s 85 degrees outside, it’s cool in the cave. If it’s 25 degrees outside, the cave is still 50 to 60 degrees.

In a home, office or church heated and cooled by a geothermal system, a pump brings 55-degree ground water up into a heat pump. The heat pump extracts heat from the water and sends cooler water back down into the earth. In the summer, the process is reversed: The pump pulls hot air from the house and sends it down into the earth.

Because geothermal heat pumps are more efficient than air-to-air heat pumps, and because the ground water is closer to the desired indoor temperature than the air outside, geothermal heat pumps use less electricity and work better in cold climates than the original heat pumps did.

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“The heat pump works in the same manner as a refrigerator does in a home. You’re basically moving temperature from one place to another,” said Anthony Ganio, president of Connecticut Wells in a company that specializes in drilling wells for geothermal systems.

But the generous tax credits that pay for 30 percent of a geothermal system’s costs, funded by the stimulus bill, have not spurred a lot of work for his 16-person firm.

“I’d say we’re doing about half the residential work we did last year. It’s certainly slowed down,” he said. “It’s a direct result of the economy, especially the retrofit market. People have hard time spending $40,000 to $60,000 on a complete upgrade of their heating system.”

But once it’s in the ground, there are substantial savings. Ganio said someone with a 6,000-square-foot home could expect to spend $280 for electricity year-round.

“You compare that to someone who’s spending $350 to $500, even $700 a month to heat a building. It’s two-thirds less energy costs,” he said.

About 70 percent of the wells he drills are for new construction, and the rest are for retrofits. Most houses that convert already have ductwork; a geothermal system needs ductwork for air conditioning.

Marv Beloff, 81, chose geothermal for his new house on Beseck Lake in “Essentially, our radiator is the floor,” Beloff said. “We also have a blower, if the radiant heat is not enough.”

Year-round, he and his wife keep the house around 70 to 72 degrees. “It costs us $5,000 a year to run everything,” he said.

Installing geothermal cost an extra $20,000 because “I’m now on my third Prius,” he said. “We should try not to pollute our atmosphere with CO2.”

He likes that the furnace does not burn fossil fuels, though he knows the electricity that runs the pumps could contribute to global warming.

Builder Ron Gaudet is marketing a green community in Colchester, with 134 home sites on 425 acres. All the houses have geothermal heat and use solar panels to generate most of the electricity to operate the heat pumps. That combination — and because the houses are built with extra insulation and high-quality windows — means that a 2,400-square-foot house costs only $500 a year in utilities, he said.

The average price of a house sold at White Oak Farm was $475,000, he said, and homeowners get $20,000 to $30,000 in tax credits and payments from state and federal governments.

Gaudet said the 12 buyers so far — 10 houses are complete — definitely liked the alternative-energy aspect of the development.

“It’s a big reason,” he said. “It’s not the main reason. They’re looking at the long range. Nobody knows where the cost of home heating oil and electricity is going over next 10 to 15 years. Everybody agrees it’s going to be higher than where it is now.”

But for his first buyer, Mihir Patel, the alternative energy was the main reason. Patel, 36, and his wife, Kokila, moved to Colchester from Windsor Locks, even though it’s farther from his work at Pratt & Whitney in East Hartford.

“We wanted to lower our carbon footprint and were also looking for ways to save on heating and cooling,” Patel said. White Oak Farm was the only place in Connecticut that offered both solar panels and geothermal, Patel said.

For his nearly 2,300-square-foot house, Patel spends $30 to $60 a month for utilities in the summer and less than $200 in the winter, with just $70 of that on heating. It’s higher in the winter because there’s less solar energy to cover the electricity.

Patel said the federal incentives made the higher initial cost more palatable, and he said he’s talking up the technology to his friends and acquaintances.

Bruce Robbin, president of the Eugene Steinberg Co. in Bloomfield, an HVAC specialist, said environmental, not financial, concerns motivate geothermal advocates. Robbin is installing a system at a West Hartford mansion right now, but other jobs his company has done have been for an office, school and church. There’s only a 10 percent tax credit for commercial users.

“Really, all of the geothermal systems we’ve sold are for people who want the latest technology and want to be environmentally responsible,” Robbin said. “The incentives do not really justify a payback that’s short enough to want to do the job.”

In the last year, geothermal accounted for 10 percent of his company’s business. But now there are only two jobs for the company to bid on, and one is geothermal.

Business is down because of the recession, and his staff shrank from 35 to 30 people, he said.

Retrofits take only three weeks, including well-digging, and Ganio said the permits are not time-consuming to obtain.

Even though the systems are expensive, not all the homeowners have huge houses. “We’ve done homes that are 1,700-square-foot capes to 6,000-square-foot colonials,” Ganio said. “I think it more has to do with the homeowner and how responsible they are with their carbon footprint.”