You are probably aware that there is an energy tax credit incentive for home owners built in to the government’s massive Stimulus Bill. Let’s recap this tax credit incentive and examine how this can be a massive opportunity for home improvement retailers.
First, it’s important to understand that this is a tax credit not a tax deduction. There is an important distinction here. A tax deduction means you deduct the prescribed amount from your taxable income before determining your tax liability. A tax credit means you reduce the tax liability you owe by the amount of the tax credit. Thus, if you have a $10,000 tax liability and a $1,000 tax credit, you only owe the IRS $9,000.00. This has huge implications for home improvement retailers.
Another important aspect of this tax credit is that it increases the cap from 10% to 30% for certain home improvement expenditures (energy conservation products.)
Here is a summary of the American Recovery & Reinvestment Act of 2009. The more significant incentives provided under the new law include:
Residential Energy Property Credit – Increased to 30%
The new law increased the Code Sec. 25C residential energy property tax credits from 10 percent to 30 percent, raises the maximum cap to a $1,500 aggregate amount for 2009 and 2010 installations, eliminates the $500 lifetime cap and makes several other modifications. The changes are effective for eligible property placed in service after December 31, 2008 and before January 1, 2011.
Note: Higher energy costs should accelerate the “pay-back” period for qualifying home improvements. The credit was in effect in prior years through 2007, but Congress allowed it to lapse for 2008. Pre-2008 credits are not counted toward the new $1,500 maximum.
Note: Improvements eligible for the Code Sec. 25C credit include insulation materials, exterior windows including skylights, exterior doors, central air conditions, natural gas, propane or oil water heaters or furnaces, hot water boilers, electric heat pump water heaters, certain metal roofs, stoves and advanced mail air circulating fans.
For more detail on these tax credits check out this Energy Star link
Residential Energy Efficient Property Credit
The new law removes the individual dollar caps under the Code Sec. 25D residential energy efficient property credit for solar hot water property, geothermal heat pumps and wind energy property. However, the new law places a $500 credit cap on qualified fuel cell expenditures.
Next time, we’ll answer some of the important questions about this terrific marketing opportunity.