New Homes Tax Credit

1
New Homes Tax Credit

• TIAP Webinar
• Steve Baden - RESNET
• www.resnet.us

2
Federal Tax Credit for New Homes

• Site Built Homes
• 2,000 to builder for each home whose performance
  is calculated to exceed Heating and Cooling Use
  of Section 404 of 2004 Supplement of the IECC by
  50 (Does not count water heating/renewable
  energy production covered by other incentives)

3
Federal Tax Credit for New Homes

• Effective Dates
• Homes built after August 2005 and purchased
  between January 1, 2006 and January 1, 2008

4
Federal Tax Credit for New Homes

• IRS Rule IRS 2006-27
• 3rd Party Inspection Required Certified by
  RESNET or Equivalent Rating Certification
  Organization
• Software Tool Must Comply with RESNET Software
  Test Specifications

5

• www.resnet.us/standards/tax_credits/procedures

6
RESNET Federal Tax Credit Software Specifications

• Auto-Generation of the Reference Homes (2004
  Supplement to IECC)
• HERS BESTEST
• RESNET HVAC Tests
• Duct Distribution System Efficiencies Tests

7
Federal Tax Credit Software Tools Accredited by
RESNET

• Energy Gauge USA (Florida Solar Energy Center)
• Micropas (Enercomp, Inc.)
• REM/Rate (Architectural Energy Corporation)
• Builder Energy Solutions (ICF Resources)

8
RESNET Federal Tax Credit Inspection
Specifications

• Homes Shall be Independently Field Tested
• Field Verification Shall Follow RESNETs Home
  Energy Rating Procedures
• Person Who Certify Homes Qualification for
  Tax Credit Shall be Trained and Certified in
  Accordance with RESNETs National Home Energy
  Rating Procedures

9
Tax Incentives for Home HVAC Equipment and
Appliances
Presented at Tax Incentives Assistance Project
Webinar 21 July 2006

• David B. Goldstein, Ph.D.
• Natural Resources Defense Council
• San Francisco
• dgoldstein_at_nrdc.org

10
Goals of the Tax Incentives

• Make highest efficiency products available to
  everyone
• Attract market attention with multi-year
  incentives
• Harmonize with existing programs
• Consortium for Energy Efficiency (CEE)
• Energy Star

11
HVAC Program Status

• Original intent was a 4-5 year program
• Manufacturers have indicated that this is the
  time needed to justify major investments in
  production capacity for high-efficiency equipment
• EPAct Incentives were trimmed to 2 years
  (2006-2007)
• Snow/Feinstein Bill, S. 3628 extends the program
  to 5 years (adds 2008-2010)

12
How Do You Qualify?

• Manufacturer certifies eligibility
• Online resources show product availability
• www.energytaxincentives.org
• www.cee1.org/resid/rs-ac/rs-ac-main.php3
• www.gamanet.org/gama/inforesources.nsf/vContentEnt
  ries/ProductDirectories?OpenDocument
• www.energystar.gov/index.cfm?cproducts.pr_tax_cre
  dits1
• Limited to taxpayers principal residence

13
Qualifying Levels of Efficiency I
14
Qualifying Levels of Efficiency II
15
Product Availability

• The goal of multi-year incentives is to increase
  availability and demand dramatically
• This is beginning to work
• Air conditioners thousands of products are now
  available compared to about 5 in 2004
• Furnaces about 100 qualifying products are
  available

16
Appliances

• A manufacturer credit consumers dont see the
  money
• Likely to lead to more products and greater
  availability at CEE and Energy Star levels
• Eligible products can be found at
• http//www.energystar.gov/index.cfm?fuseactionfin
  d_a_product.

17
Qualifying Products

• Refrigerators Incentives for Energy Star and
  CEE Tier 1 and Tier 2 products (15, 20 and 25
  below federal standards)
• Clothes washers 2007 Energy Star level (1.72
  MEF, 8.0 WF)
• Dishwashers 2007 Energy Star level (.65 EF)

18
Solar - Residential and Commercial ITC

• Colin Murchie, Director of Government Affairs
• Solar Energy Industries Association
• [phone] x 2
• cmurchie_at_seia.org

19
Solar - Residential and Commercial ITC

• 30 Credit on Capital Costs through 2007
• 26 USC 48
• Permanent 10 Commercial ITC
• For solar water heating, air heating, lighting,
  PV
• Includes equipment and installation
• 5 year carryforward

20
Credit Limitations and Requirements

• Pool Heating Equipment Ineligible
• 2,000 cap for residential systems
• SRCC (www.solar-rating.org) or state
  certification of heating equipment
• AMT ineligible
• AMT eligibility effort underway www.seia.org
• Non-transferable
• Sale leasebacks permitted, ownership required

21
Additional Resources

• www.findsolar.com
• Contractors, reviews,
• recommendations, etc.
• www.dsireusa.org
• All state incentives
• www.seia.org
• Credit extension effort
• Tax Manual
• continuous updates
• IRS precedent

22
Qualifying for the New Home Tax Credit

• Examples in 9 U.S. Cities
• TIAP Web Seminar
• July 21, 2006
• Philip Fairey

23
Introduction

• Simulations and calculations performed using
  EnergyGauge USA qualified through software
  tests required by RESNET Pub 005-01
• Only one of many possible solutions provided for
  each climate (best orientation)
• No mechanical ventilation all homes with
  natural infiltration at 0.35 ach
• All insulation is assumed installation Grade I
• Results indicate that many new homes, in all
  parts of the country, may ultimately qualify for
  federal tax credits.

24
Home Characteristics
Very similar to examples provided by Micropas
25
Envelope Characteristics
Light in color
26
Window Characteristics
To follow Micropas example
27
Lighting Appliances
high-efficiency fixtures / qualifying fixture
locations
28
HVAC Equipment
tight tested to 3 cfm 25,out per 100 ft2
conditioned area
29
Conclusions

• Qualification not difficult in very mild climates
• Window selection is important, with changes in
  SHGC making a significant difference, even in
  northern climates
• Efficient lighting and appliances provide
  significant benefit in cooling dominated climates
• Relatively standard envelope features can make
  the goal with only moderate increases in HVAC
  efficiencies if ducts are good
• Tight ducts located in conditioned space provide
  significant benefit for both heating and cooling.

30
Tax Credit Software

• Software providing for analysis for tax credit
  qualification available to anyone
• Software for certification purposes is only
  available to IRS certifiers
• Try before You Buy Software is available online
  as a free downloadable at http//EnergyGauge.com

31
Integrating Tax Incentives into Energy Efficiency
Programs

• Rick Gerardi
• Director, Residential Programs
• NYSERDA

32
New Homes

• Planning on a Better-Best Strategy
• Better New York ENERGY STAR Labeled Homes
  core voluntary program
• - Continued training and technical assistance to
  builders
• - NY Incentives of 750- 1000 per home
• - 13 market share

• ENERGY STAR Best of the Best tax
  credit-eligible homes and fulfill NYS
  requirements with additional specs
• - Additional training and technical
  assistance to builders and Raters
• - Combination of NY incentives and tax
  credit built into software
• - Targeted mid-stream marketing

33
Existing Homes

• Home Performance with ENERGY STAR
• Program which promotes comprehensive retrofits to
  address comfort, health, safety and energy
• Typically achieving 30 energy savings
• 500 federal tax incentive a modest sweetener
• We will tell homeowners about
• Not a major part of promotion
• A performance-based incentive with higher
  incentives for high savings will better
  complement our program
• E.g. as in the new Snowe-Feinstein bill
• Software documentation of energy percentage
  savings

34
ENERGY STAR Labeled Products

• Planning a best of the best campaign to promote
  high-efficiency appliances and other products
  which exceed Energy Star criteria
• - Will better align with tax credit eligibility
  in 2006

• In 2007, Energy Star and tax credits will align
  for clothes washers and dishwashers but not
  refrigerators
• - Best of the best will still be important for
  levels above
• ENERGY STAR
  

35
Moving Forward

• Tax incentive levels and structure should be
  reexamined as part of extension discussions
• Restructuring particularly needed for existing
  homes
• ENERGY STAR should keep its specifications
  up-to-date
• E.g. refrigerator specification needs updating
• ENERGY STAR Best of the Best to increase
  specification levels when a state exceeds its
  ENERGY STAR market transformation goals
• NY will continue fine-tuning programs to maximize
  savings and cost-effectiveness through
  market-based strategies

36
Commercial Buildings Tax Deduction

• Ed Gray
• Director, Energy Infrastructure
• National Electrical Manufacturers Association

37
Commercial Buildings Tax Deduction

• Provides for energy efficient systems deduction
  up to 1.80 per square foot for whole buildings
  using 50 less energy on a cost basis than a
  building designed to ASHRAE/IESNA 90.1-2001, as
  of April 2001. Or 0.60 per square foot for
  systems improvements proportional to 50 energy
  savings for a whole building. Systems include
  lighting, HVAC/water heating, and building
  envelope. There is a special provision for
  federal, state or local government owned
  buildings
• Asset owner gets the deduction
• Allowable for assets placed in service from
  1/1/06 through 12/31/07
• For government buildings, the person primarily
  responsible for the design gets the deduction
• Lighting systems have an interim provision, so
  that design doesnt have to wait on IRS
  regulations
• Certified designers, software, and inspectors
  must be used

38
Tax Rule Schedule

• IRS Notice 2006-52 includes self certification
  concept for design, software, inspection forms
  showing technical basis to be retained by
  taxpayer, but not sent in with return
• Government buildings rules to be included in
  another Notice
• Regulation to be done later to include detailed
  rules
• Certified software likely to be available soon
• Interim lighting rules enable work to be done
  before regulations done
• Stakeholders need to review IRS work for
  potential comments

39
IRS Clarified Issues

• International Revenue Service Notice 2006-52
  contains guidance corrected version in Internal
  Revenue Bulletin 2006-26 dated June 26, 2006
• Certifier and inspector may be professional
  engineer or contractor licensed in the buildings
  jurisdiction
• Software to be self-certified, to be listed on
  DOE website
• Inspector cannot be an employee of asset owner

40
Alternatives for Deduction

• Whole building 50 energy cost reduction
• Partial Deduction Lighting Target
• Partial Deduction HVAC Target
• Partial Deduction Envelope Target
• Interim Lighting Rules using ASHRAE prescriptive
  lighting tables (9.3.1.1 and 9.3.1.2)
• Interim Lighting Rules only in effect until
  final regulations are published in Federal
  Register, NEMA has requested that interim rule
  alternative be made permanent

41
Whole Buildings

• Reference Building meets Standard 90.1 minimum
  requirements in the manner specified
• Performance Rating Method (PRM) used to determine
  energy and power cost reduction percentage of
  proposed building compared to reference building
  (50 and 16.7 targets)
• Baseline reference building performance uses PRM
  in Appendix G of ASHRAE Standard 90.1-2004
• California Title 24 ACM requirements
• Internal loads (Tables N2-2 and N2-3)
• Infiltration modeling (Section 2.4.1.6)
• Luminaire power from Appendix NB (or
  manufacturers data)

42
50 Below 90.1-2001 Buildings

• Achieved for a small number of existing buildings
• Additional systems in the Technical Explanation
  of the legislation are not in the IRS guidance
  (renewable on-site generation, daylighting,
  efficient wiring, and others)
• A high degree of systems integration and careful
  site selection and orientation needed

43
Typical Design Features

• Efficient envelope systems
• High performance glazing and selective
  orientation with solar control
• Daylighting
• High efficiency lighting and controls
• High efficiency HVAC and controls
• Ventilation control and heat recovery

44
PRM Information

• ASHRAE Standard 90.1-2004 (on-line, read-only)
• 2005 California Title 24 Nonresidential
  Alternative Calculation Method (ACM) Approval
  Manual http//www.energy.ca.gov/title24/2005standa
  rds/nonresidential_acm/index.html
• DOE list of approved software
• http//www.eere.energy.gov/buildings/info/tax_cre
  dit_2006.html
• NREL Energy Savings Modeling and Inspection
  Guidelines for Commercial Building Federal Tax
  Deductions

45
EPAct 2005 System Deduction

• Provides for partial deduction for 3 major
  systems (lighting, HVAC/water heating, building
  envelope) that correspond to 50 reduction in
  building energy use
• IRS Notice 2006-52 states that 16.7 whole
  building savings are the system goal for each
  system
• Requires building modeling using certified
  software
• Software will be listed on a DOE website
• NEMA has commented that the reference building,
  from a lighting perspective, need only be based
  on the space use, LPD and square feet it is not
  necessary to develop site specific references for
  lighting

46
System Deduction

• IRS decision of 1/3 split means 16.7 energy cost
  reduction for each system (1/3 of 50)
• Retail example using custom targets
• Envelope 22 of cost 11 savings target
• Lighting 28 of cost 14 savings target
• Mechanical 50 of cost 25 savings target
• One-third split targets may be hard to meet

47
Interim Lighting Provision

• Until such time that final IRS rules are
  promulgated, lighting systems are eligible for a
  partial deduction.
• Key provisions
• Deduction is 0.30 to 0.60 for 25 to 40 under
  ASHRAE LPDs, respectively, from Table 9.3.1.1 or
  9.3.1.2. Use it or lose it allowances are not
  to be considered in the LPD reduction
• Warehouses must be 50 under to get 0.60 (no
  sliding scale)
• ASHRAE controls bi-level switching required
• Industry has asked that provision be made
  permanent as the lighting system deduction

48
Continuing Actions

• Convene technical stakeholders group to resolve
  details of ASHRAE vs. California methods and
  reference building
• Extend tax provision (several bills already
  introduced in Congress)
• Determine if other provisions need legislative
  solutions
• Continue promotional program

49
Further Information

• http//www.efficientbuildings.org
• http//www.lightingtaxdeduction.org
• http//www.energytaxincentives.org/tiap-commercial
  -bldgs.html
• http//www.advancedbuildings.net/

50
Vehicle Tax IncentivesTIAP Webcast

• Therese Langer
• ACEEE Transportation Program
• July 21, 2006

51
Efficient vehicle incentives Light-duty

• Consumer tax credit of up to 3400 for hybrids
  and diesels
• Based on fuel economy and lifetime fuel savings
  of vehicle relative to average in weight class
• Must meet threshold for emissions
• After a manufacturer sells 60,000 vehicles,
  credit amounts begin to decline

52
Efficient vehicle credits heavy-duty
 
53
Status of market light-duty

• Hybrids
• 11 eligible vehicles, gaining up to 93 of
  maximum credit
• None available in certain classes (e.g. pickup)
• Sales about 1 of the market
• One manufacturer has already hit 60,000-vehicle
  threshold, no others will meet this year
• Diesels
• Not clean enough (yet)
• First one slated for release this year
• Fuel cell vehicles
• None commercially available

54
Light-duty hybrid sales
55
Status of market heavy-duty

• Except for transit buses, all candidate vehicles
  in pre-production stages
• Incentives could make a big difference in the HD
  market, but
• Incentives may not be large enough
• Timing is not quite right
• Test procedures allowing vehicles to gain credits
  still under development

56
Fleet issues

• For tax-paying entities Alternative Minimum Tax,
  sufficient tax liability
• For tax-exempt entities seller gets the credit
  but must divulge amount to buyer
• Will seller pass on credit?
• Can seller take advantage?
• Availability of credit information relative to
  purchase cycle

57
Fleet issues (cont.)

• For heavy-duty, most purchasers will be fleets
  and many, tax-exempt
• First hybrid applications identified transit
  buses, delivery trucks, waste haulers, and
  utility trucks
• Seller will typically be the manufacturer how
  does this affect efficacy of the credits?

58
Next steps

• Light-duty
• Find out how credits influence manufacturer
  production plans and in particular what limits
  domestic manufacturers interest
• Improve fleet access to hybrids and test
  mechanism to accommodate tax-exempt purchasers
  and leasing

59
Next steps (cont.)

• Heavy-duty
• Expedite test procedure adoption to reduce
  uncertainty re credit availability
• Resolve tax-exempt, AMT issues
• Extend credits?