On December 18th, 2015, during the closing hours of the 2015 legislative session, President Obama signed into law the extension of several expired tax provisions, including the 45L $2000 federal tax credit for high-performing energy efficient new homes. You may remember that the $2000 tax credit expired on December 31, 2014. This new legislation made the tax credit retroactively available for homes built in 2015 and extended it for homes built in 2016.
Unlike the last reauthorization of this legislation, no changes were made to the requirements for a home to qualify for the tax credit. The last reauthorization changed the basis of the tax credit from the 2003 to the 2006 International Energy Conservation Code. We learn that this change has made it significantly more difficult to qualify. That being said, we continue to believe that it does not make sense for builders to make a specification change in an effort to capture more tax credit dollars, unless we know that the credit will be extended beyond 2016. If you would like us to run an analysis on your homes to identify what specification changes would lead to higher compliance, we will be happy to do that though our consulting services.
How the Tax Credit works:
Many may not remember how the tax credit qualification is actually quantified. Your house is imputed into the modeling software tool. Within that software (REM/Rate) the house is duplicated, thus creating two houses that are geometric twins; House A and House B. House A is assigned the energy specifications that are outlined in the 2006 IECC and House B is assigned the energy specifications you, the builder, actually used. The tax credit is issued for House B when it is 50% more efficient in heating and cooling energy use than House A, built to the 2006 IECC. For the modeled “House,” the software determines what the 50% target is and if the as built house (House B) is performing equal to or better than the 50% targeted energy use.
The tax credit adds one further complication in that it has created a two-part test to demonstrate 50% compliance. The home’s heating and cooling energy use must be 50% more efficient than the 2006 IECC, as measured by normalized end-use loads and the building envelope component loads. The building envelope component loads alone must account for at least 10% of those savings. If both of these tests pass, the house qualifies for the tax credit. According to the software compliance reports, a majority of homes pass the envelope loads test but do not always pass the normalized end-use loads test. Normalized end-use loads account for the differences in equipment types that exist when using gas or electric utilities. This is a bit of a ‘black box’ calculation; this portion of the compliance matrix has to be addressed by a specification change in order to capture more rebates.
Only homes that are tested and inspected can qualify for the tax credit. While we can do some analysis to help increase the percentage of the homes that will qualify, it is unlikely that 100% of your homes will ever qualify. This is because the analysis utilizes a whole-house evaluation and some of the parameters are not in the builder’s control, such as house orientation.
In order to claim the tax credit, you will need the tax credit certificate from us and IRS Form 8908.