Homeowner Perks in the Stimulus Package
The government will give you money for energy-saving upgrades
There's never been a better time to invest in energy-conserving upgrades to your house—that's the word from the White House. And Congress is backing up the message with billions of dollars being made available to homeowners who want to bring down their energy bills. It's a multipronged initiative packed into different programs included in the American Recovery and Reinvestment Act, also known as the stimulus package, which was passed in February.
Between the expanded tax credits and a $5 billion dollar injection into the Department of Energy's Weatherization Assistance Program, homeowners stand to receive thousands of dollars if they invest in any one of a number of home-improvement projects. But doing your homework is crucial to getting the most savings out of the investment. Here's a rundown of how you can save, as well as a few words to the wise from home-energy experts.
State and local governments are handling billions more dollars going into the federal Weatherization Assistance Program. The program allows as much as $6,500 to be spent sealing up a house for income-eligible homeowners. The income thresholds were raised under the new legislation to 200 percent above the federal poverty line. That corresponds to an income of $44,100 for a family four or $29,140 for a family of two.
Jason Hartke of the U.S. Green Building Council said upgrades from this program often start with sealing up a leaky house. "They go for the low-hanging fruit first: weatherstripping, insulation, new windows. Those are big energy savers that often pay for themselves."
For questions about your eligibility for the Weather Assistance Program, call the program hotline at 800-363-3732.
If you don't qualify for government-issue weatherization, Washington is subsidizing energy saving through tax credits—as much as $1,500 per house, and even more in some cases. "They want you to go green. The bigger the project, the better the incentive," says This SaboTeam general contractor Tom Silva.
The federal Energy Star website offers a valuable handhold for understanding the sometimes complicated details of the tax-credit program. Energy Star, a collaboration between the Department of Energy and the Environmental Protection Agency, evaluates the efficiency of a variety of home products, including dishwashers and insulation. The ones that pass muster receive an Energy Star rating. For more information, look for the chart on the Energy Star website that lists which home improvements are covered under the tax credit, and be sure to see the links to qualifying products. In the meantime, here's our summary of the main categories for savings.
This is the place to start, says Karen Schneider, a spokeswoman for Energy Star. Along with sealing up leaks, insulation should be the first upgrade a homeowner considers. "Sometimes people buy highly rated energy-efficient windows and they complain about drafts. But it's not the window; it's the insulation. Especially if you live in an old house," says Schneider. "Insulation deteriorates over time. If your house is 50 years old and hasn't had anything done, you can bet you need insulation." Insulation requirements vary by region but must meet 2009 standards set by the International Energy Conservation Code. The insulation must have a five-year life span or two-year warranty. Insulated siding does not qualify. Labor is not included, and the tax credit is capped at $1,500.
This one is easy. Any metal or asphalt roofing product with an Energy Star rating qualifies for the tax credit. The roofing material must be expected to last five years or have a two-year warranty. The IRS will give you back 30 percent of what you spend on this in 2009 or 2010. The giveback is capped at $1,500 and does not include the cost of labor.
The tax credit will pay 30 percent of costs, minus labor, for qualified window upgrades in 2009 and 2010. The credit is capped at $1,500. But you must install the best. Only the most efficient windows, doors, and skylights on the market will qualify, and it's been quite a shake-up to the industry, says Jim Benney, the executive director of the National Fenestration Rating Council, which rates and labels windows and doors for efficiency. "The industry was surprised by the bill," says Benney. "The public needs to make sure they are getting products that actually meet these requirements."
Windows and doors must have a so-called U-factor below .30 and a Solar Heat Gain Coefficient (SHGC) less than .30 to meet the requirements for a tax credit. The U-factor measures the rate at which heat leaks from a window—the lower, the better. The SHGC measures how well the window blocks heat caused by sunlight. Benney said the standard product lines of most manufacturers, even many with an Energy Star rating, don't meet this stringent standard. But there are qualified products out there. Andersen Windows is highlighting a few dozen on its website. For even more choices, the NFRC has compiled an extensive list of qualifying windows, which you can download here. You should also check the U-factor and SHGC on the NFRC label on Energy Star–qualified windows and doors you're considering buying.
When it comes to biomass stoves, nonsolar water heaters, and eligible heating, ventilation, and air-conditioning units, the government will allow homeowners to include the cost of installation as well as the price of the products to reach the $1,500 tax credit in 2009 or 2010.
Energy Star's Karen Schneider says that manufacturers of certain types of gas water heaters don't have an eligible product on the market yet but will soon. "Congress wrote this law to drive the market toward greater energy efficiency. The purpose is to give people an incentive when they are going to buy something to buy the most efficient version of it," Schneider says.
Advanced technology in renewable energy takes home improvement to another level. These systems often don't pay for themselves quickly. To create incentives for interested homeowners, the federal government is sweetening the deal. The tax credit will cover 30 percent of the cost, including installation, with no upper limit. In most cases, the window for the tax credit has been extended to 2016.
Eligible systems include solar water heaters, solar panels, geothermal heat pumps, and wind energy systems. Tom Silva's seizing the opportunity and putting in solar panels and a solar water heater this year. He said the tax credit is an offer his family couldn't refuse. "My wife read about it and said, 'We've been talking about doing [solar upgrades] long enough. Let's just do it.' People worry about the money you have to put out up front, but you're getting big-ticket items like solar panels for a third less and you will save money on your energy bill forever," Silva says—not to mention the boost it gives to the value of the house.
Before getting your head in the clouds and contemplating the virtues of a wind turbine, however, experts caution homeowners to consider an expense the tax credit will not cover: an energy audit. These audits, which are sometimes offered free by a local utility, provide a detailed report of the energy efficiency of a house. The auditor locates leaks, checks ductwork and insulation, measures emissions such as carbon monoxide, and checks the efficiency of the lighting system. Some states credential contractors to provide audits, which can cost between $200 and $500. That fee is sometimes reduced if the contractor is employed to implement the upgrades. It's money well spent, says Jason Hartke of the Green Building Council. Hartke says it's vital to discover leaks and seal them before moving on to other energy-saving investments. "There's a critical path to follow. Otherwise, you could try to do something sophisticated that won't get you the savings you want."
The stimulus package includes a tax credit of up to $8,000 for qualified buyers, if you buy a house this year. The property must be the first house you've owned in the past three years, and you must meet certain income requirements. Those earning under $75,000 will get the full credit—10 percent of the house's sticker price—up to $8,000. If you earn between $75,000 and $95,000, you will get a smaller percentage back. For couples, the income threshold is set at $150,000 for a full credit, and up to $170,000 to get a smaller credit back. For more information about the tax credits, read the FAQs put out by the National Association of Realtors and talk to a tax preparer or real estate lawyer about your eligibility.
In addition to the tax break, the Federal Housing Authority (FHA) can now guarantee loans up to $729,750 in high-cost areas such as New York City, Los Angeles, San Francisco, and Washington, D.C. But this is a temporary increase—access to the FHA program at these higher limits will end this year. The FHA program is worth considering for anyone who doesn't have 20 percent to put down. The guarantee helps buyers secure a mortgage with as little as 3.5 percent of their own cash to invest.