Energy Efficiency Incentives for Homeowners

It pays to be eco-friendly! Learn how you can take advantage of these tax credits, rebates and loans.

Going green is good for the planet and your wallet. Check this out:
  • Installing energy efficient windows can reduce heating bills by 25 percent.
  • Energy-saving air conditioners can reel back cooling bills by 50 percent.
  • Energy Star-rated clothes washers use about 50 percent less energy than conventional washers.
  • Using the latest bulb technology can cut lighting energy use by up to 75 percent.

Despite these benefits, homeowners are reluctant to pay more for energy efficient products upfront. Now, thanks to several federal, state and local programs, you can get help to pay for energy efficient home improvements, such as new insulation, double-paned windows, solar panels and other products that make your home more eco-friendly.

“Tax incentives help people with initial costs so they can start saving money on energy bills,” says Tom Simchak, a research associate at the non-profit Alliance to Save Energy. The American Recovery and Reinvestment Act allocated more than $40 billion to incentivize energy efficiency, and state and local programs devote even more funds for helping folks green their homes.

Federal regulations can be confusing, so we talked to the experts to break down the different incentives available for homeowners. Read on to learn how you can take advantage of tax credits, rebates, loans and mortgages to help offset the cost of energy efficient improvements.

American Recovery and Reinvestment Act (ARRA):
People who purchase products that meet certain energy efficiency standards are eligible for tax credits under this act. A tax credit lowers the amount of tax you owe Uncle Sam and is claimed when you file your annual tax forms. Two kinds of home improvements are eligible for federal tax credits: general energy efficient upgrades and larger renewable energy systems.

  • Energy Efficient Upgrades
    Biomass stoves, HVACs (central air conditioning, heat pumps, boilers and furnaces, and circulating fans), insulation and air sealants, metal and reflective asphalt shingles, water heaters, or windows and doors can earn a credit. Folks who purchase these products anytime in 2009 or 2010 are eligible for a tax credit of 30 percent of the product’s cost, with a $1,500 maximum for the two years. All products must meet energy efficient requirements established by the Department of Energy (DOE), which can be found here. Request a Manufacturer Certification Statement before you buy a product. This statement outlines the item’s energy efficiency specs and can be obtained by calling the manufacturer, looking on the product’s Web site, or asking a contractor or retailer.
  • Renewable Energy Systems
    Products in this category include geothermal heat pumps, solar water heaters, solar panels, small wind turbines and fuel cells. Fuel cells are eligible for a tax credit of 30 percent of the cost, up to $500 per 0.5 kilowatts of power capacity. All other systems in this category can get a tax credit that’s 30 percent of the total cost (including installation). Unlike the previous category, adopting these technologies anytime through the end of 2016 can earn homeowners a credit. Again, request a Manufacturer Certification Statement to make sure systems meet DOE requirements.

Energy Star Rebates:
The ARRA gave the DOE $300 million to establish Energy Star rebates -- refunds to consumers who purchase Energy Star-rated appliances. Since appliances account for about 17 percent of an average household’s energy use, using energy efficient appliances and getting a rebate for buying them is a really great deal. While all 50 states and six territories have an Energy Star rebate program in place, they vary. “All states have different products they cover, different timelines, different rebate amounts and different processes,” says Kate Schneider, a spokesperson for the EPA’s Energy Star program. To find out which appliances are eligible for rebates in your area, check out Energy Star’s Rebate Programs site.

State, Local and Utility Incentives:
ARRA is currently the only federal program providing incentives for energy efficient home improvements, but there are a ton of bonuses offered by states, municipalities and utility companies. To find out what programs are available where you live, check out the DOE’s online Database of State Incentives for Renewables and Efficiency (DSIRE) or call your state energy office.

Green Financing Programs:
Some municipal financing districts and companies offer homeowners low-risk loans to make energy retrofits. Property Assessed Clean Energy bonds, or PACE bonds, provide the upfront costs for installing energy efficient tech, and homeowners repay the loan over 20 years through an additional sum on their property tax bill. Cities like Berkeley, San Diego, Boulder and Annapolis have PACE programs in place, and San Francisco has launched the nation’s largest green financing scheme. Some local lenders and banks also offer green mortgages. Energy Efficient Mortgages (EEMs) or Energy Improvement Mortgages (EIMs) offer a larger loan than normally permitted so people can purchase an energy efficient home or make upgrades to the house. The idea is that the extra dough spent on property taxes or a mortgage is less than homeowners’ energy bills before retrofitting, saving people money in the long run.

Pending Legislation:
The only federal incentives for making energy efficient upgrades come from ARRA, but that may change soon. Congress is close to approving a bill that would create the HOMESTAR program, which provides rebates for specific energy efficient products and for whole home energy retrofits. Climate and energy legislation is currently kicking around the Senate, which may provide incentives to promote energy efficiency. Another bill may extend the currently expired homebuilders tax credit, which offers a $2,000 tax credit for new homes that achieve a 50 percent energy savings. And while many ARRA tax credits expire at the end of 2010, Simchak and other energy experts agree that they will likely be extended in some capacity.

Bang for Your Buck:
Everyone loves a federal handout. But the fact that energy efficient products cut power use means they typically make up for their initial costs by saving you serious dough on utility bills. “The payback on upgrades varies from a couple years for new windows to six months for CFLs in your hallway,” says Simchak. “Some upgrades are no-brainers. It will cost you eight dollars for a caulk gun and a couple tubes of caulk, and that will save you a bunch of money on heating and cooling.”

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