Department of the Treasury Releases Rules for Federal Residential Energy Efficiency Tax Credits

Congress Extends Tax Incentives for Energy Efficient Homes and Commercial Buildings
Congress has passed and President Bush has signed legislation that extends the tax incentives for energy efficient new homes and commercial buildings to January 1, 2010. All of the provisions for the incentives remain the same.

The IRS has issued the rules for the new federal tax credits for residential energy efficiency available under the Energy Policy Act of 2005.

Energy Efficient Homes

Under the provision for energy efficient homes, an eligible contractor who constructs a qualified new energy efficient home may qualify for a credit of up to $2,000. The credit is available for all new homes, including manufactured homes constructed in accordance with the Federal Manufactured Homes Construction and Safety Standards.

The home qualifies for the credit if:

• It is located in the United States;
• Its construction is substantially completed after August 8, 2005;
• It meets the statutory energy saving requirements, and
• It is acquired from the eligible contractor after December 31, 2005, and before January 1, 2009, for use as a residence.

In general, to meet the energy saving requirements, a home must be certified to provide a level of heating and cooling energy consumption that is at least 30 to 50 percent in the case of manufactured homes, and 50 percent for other homes below that of a comparable home constructed in accordance with the standards of the 2004 Supplement to the 2003 International Energy Conservation Code. It must also have building envelope component improvements providing a level of heating and cooling energy consumption that is at least 10 percent below that of a comparable home.

Manufactured homes can also qualify for the credit by meeting Energy Star standards.

• Site-built homes qualify for a $2,000 credit if they reduce energy consumption by 50 percent relative to the International Energy Conservation Code standard.
• Manufactured homes qualify for a $1,000 or $2,000 credit depending on the level of energy savings achieved. The guidance provides information about the certification process that a builder must complete to qualify for the credit. The guidance also provides for a public list of software programs that may be used in calculating energy consumption for purposes of obtaining a certification.

Click on Notice 2006-27 for the IRS guidance for the tax credit for building energy efficient homes other than manufactured homes. The IRS rules states that "An eligible certifier is a person that is not related (within the meaning of § 45(e)(4)) to the eligible contractor and has been accredited or otherwise authorized by RESNET (or an equivalent rating network) to use energy performance measurement methods approved by RESNET (or the equivalent rating network). An employee or other representative of a utility or local building regulatory authority may qualify as an eligible certifier if the employee or representative has been accredited or otherwise authorized by RESNET (or an equivalent rating network) to use the approved energy performance measurement methods". To download the RESNET procedures click on Procedures for Certifying Residential Energy Efficiency Tax Credits for New Homes.

RESNET has amended the procedures to incorporate the normalized modified loads calculation of energy use and has published the revised document RESNET Publication No. 06-001.

The IRS has announced that it will accept verification of homes calculated through the method contained in RESNET Publication No. 05-001 or RESNET Publication No. 05-006. To download the IRS announcement click on Standards for Calculating Energy Savings for the New Energy Efficient Home Credit. Internal Revenue Code 45L.

In order to provide clearer guidance in complying with the RESNET Procedures for Certifying Residential Energy Efficiency Tax Credits the RESNET Board of Directors adopts and posts formal interpretations on the procedures. To view these interpretations click on RESNET Interpretations on Procedures for Certifying Residential Energy Efficiency Tax Credits.

The RESNET Board of Directors have adopted a policy that would govern proposals for prescriptive programs for verification of homes for the tax credit for energy efficient homes. To view the new policy click on RESNET Policy on Conducting and Documenting Worse-Case Analysis.

RESNET now requires that the rating firm/individual must also carry professional liability insurance in the amount of at least $500,000. The rater will have to provide a signed statement to RESNET declaring this coverage. This statement also includes language that states the rater's or rater company's awareness that falsifying the certification of a home for the tax credit can lead to sanctions up to and including the loss of the ability to certify homes for the tax credit in the future. To view the new requirement click on Requirements to Certify the Energy Efficient Homes Credit.

Click on Notice 2006-28 for guidance for the credit for building energy efficient manufactured homes.

Click on Energy Efficient Home for the IRS tax form (Form 8908) to down load the form to calculate the tax credit for energy efficient homes.

Frequently Asked Questions for Builders About the Energy Efficiency Tax Credits for New Homes

Frequently Asked Questions from Home Energy Raters About the Energy Efficiency Tax Credits for New Homes

The Energy Policy Act of 2005 established a federal tax credit for builders for each homes that exceeds the energy performance threshold spelled out in the 2004 International Energy Conservation Code. There has been a question whether builders could economically achieve the energy performance threshold to qualify for the tax credit. To provide real life examples of homes that have met the tax credit RESNET has posted examples of homes that have qualified for the tax credit in a variety of regions across the nation. To view these documents click on examples of homes qualifying for federal tax credit for energy efficient homes.

Existing Homes

The American Recovery and Reinvestment Act of 2009 extended and modified the existing homes tax credit. For the latest information click on Existing Homes Tax Credit.

Commercial Buildings

The American Recovery and Reinvestment Act of 2009 extended and modified the commercial building tax incentive homes tax credit. For the latest information click on Commercial Buildings Tax Incentives.