Energy Efficiency Tax Credits: Pending Beyond 2021

man lifting a solar panel to the 2nd floor

On December 31, 2021, federal tax credits for energy efficiency in private homes expired. This puts in limbo an incentive program that would benefit most Americans, regardless of income bracket. Renewal or extension will have to be approved by Congress.

Expired Tax Credits for Weatherization

Weatherization involves home improvement that increases efficient use of energy, lowers energy costs, and supports the health and safety of residents. The expired tax credits covered 10 percent of the cost of insulation and energy-efficient roofing, skylights, windows, and doors, up to $500. These had to be placed in existing homes that were the main residence of applicants.

Proper insulation is one of the cheapest ways to make a house more energy efficient. Among the options are professional attic spray foam installation, pour-in-place insulation, rigid boards, blow-in fibers, rolls, and batts.

A house must also be air sealed to eliminate or at least minimize air leaks. Qualified for the program were products such as air-sealing caulk, air-sealing foam spray in cans, weather stripping, and house wraps that have a Manufacturers Certification Statement.

For roofing, qualified were asphalt and metal roofs with ENERGY STAR certification. Such asphalt roofs contain cooling granules while the metal roofs come coated with special pigments that reflect the rays of the sun. Both types can bring down the temperature of the roof by up to 100 degrees Fahrenheit. This also lowers the heat transferred to the interior of the house.

Skylights, doors, and windows also had to have ENERGY STAR certification for energy efficiency to qualify. Installing just one window or replacing one already qualified for the tax credit. For windows, however, there was a cap of $200.

Expired Tax Credits for Energy-Efficient Equipment

For the acquisition of energy-efficient equipment, the tax credits varied. These also had to be placed in existing homes that were the main residence of applicants.

Air source heat pumps (ASHP) and water heaters powered by electricity, oil, gas, or propane with ENERGY STAR certifications had a $300 tax credit each. Centralized air conditioning and hot water boilers powered by oil, gas, or propane with ENERGY STAR Most Efficient certifications also had a $300 tax credit each. Biomass stoves with a thermal efficiency rating of not less than 75 percent also had a $300 tax credit.

Furnaces powered by oil, gas, or propane with ENERGY STAR certifications had a tax credit of $150. The main air fan of a furnace had a tax credit of $50 provided it used not more than two percent of the total energy used by the furnace.

Tax Credits for Renewable Energy
blue house with solar panel installed at its roof

People will be glad to know that tax credits for acquiring renewable sources of energy will only expire by December 31, 2023. Most of these can be placed in existing or newly constructed homes. Rented homes still do not qualify.

The tax credit has brackets. For those installed as of December 31, 2019, the tax credit is 30 percent. For those installed from January 1, 2020, to December 31, 2022, the tax credit is 26 percent. For those installed from January 1, 2023, to December 31, 2023, the tax credit is 22 percent.

Qualified are ENERGY STAR certified geothermal heat pumps, solar water heaters, solar panels that provide electricity to the house, and small residential wind turbines that generate not more than 100 kilowatts of electricity.

Fuel cells are also qualified, but they can only be installed in the applicant’s main residence. There is also a cap of $500 for every half kilowatt capacity. The fuel cell must have an electricity generation efficiency of more than 30 percent.

President Biden’s Weatherization Plan

Something to look forward to is the administration’s infrastructure plan that allocates $213 billion to improve and weatherize over two million homes among eligible low-income households. This is meant to expand the existing weatherization assistance program of the Department of Energy. Currently, there are 38.6 million low-income households that are eligible for the program but only two percent receive the weatherization benefit each year.

The high cost of energy has a high impact on households that have an income equal to or less than 200 percent of the federal poverty level. While median households spend 3.1 percent of their income on energy costs, low-income households spend 8.1 percent of their income. Those with household members with disabilities spend as much as 8.7 percent of their income. Those with seniors spend even more at 9.3 percent. Lowering their energy usage through weatherization will enable them to use the savings for other essentials like food and health needs.

Some states have similar programs of their own already in place. Among these are Minneapolis, Seattle, Philadelphia, Atlanta, New Orleans, Texas, California, and Florida. Hopefully, the federal program will come to fruition nationwide and the tax incentives for energy efficiency for all income levels will be restored.

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