Background And Introduction
In this report we will share some good news. As a result of the recent government stimulus bill, there are extensions of valuable tax credits and tax deductions to reward energy conservation. There are also some significant increases in the benefits for home owners. We are confident that the information provided in this report can benefit millions of people and that makes it good news indeed.
The good news is that contractors can build energy efficient new homes and get credits ranging from $1000.00 to $2000.00. Owners of commercial buildings can make their buildings more energy efficient and get tax deductions of up to $1.80 a square foot depending on the situation. Home owners can make their homes more energy efficient and get tax credits of 30% with a dollar cap of $1500 in benefits.
Heating and cooling homes and buildings is a major energy cost. One of the products that will help get these credits and deductions is insulation. Due to scientific advances coming from the NASA Space Program, there are new and very flexible forms of insulation that come in the form of energy saving paint and additives to make energy saving coatings. One way to understand these products is to think of liquid applied insulation.
These energy saving products greatly extend the options that can be used to make a home or a building more energy efficient. Note: BioTech Research may soon be marketing a ceramic paint additive that when mixed with regular paint, creates a “thermal paint” that saves energy (a complement to their EdenPure infrared heaters which also save energy).
The background for this information comes from the big tax bill that passed in 2005 which introduced these tax breaks for home owners and business owners. At that time the tax deduction for making a commercial building was very attractive and the tax credit for new energy efficient homes was worth pursuing. However the benefit for home owners was limited to only 10% with a cap of $500., which was only marginally beneficial for home owners. In the new bill, there are significant time extensions on the commercial building deduction and the new home credit. However the beefed up credit for home owners has gone up in a major way and will probably drain a lot of money from the government that will go into the pockets of wise home owners. It is no surprise therefore, that the window on this benefit is limited to products placed into service during the years 2009 and 2010. At midnight on the last day of 2010, the carriage turns into a pumpkin and the tax credit window is closed.
Because there are real benefits here and because there are significant time windows to work with, we feel this is a good time to report on these benefits. The goal of this report is make the benefits easy to understand and to identify some products that might be used to take advantage of the offer from the government to pay for people to make their homes and buildings more energy efficient.
We see this as a win-win situation. New business opportunities will open up and new jobs will be created. Major savings on energy will take place and people will lower the cost of becoming more energy efficient while putting themselves in a position to enjoy long term energy savings. On the global scale, there will be less pollution put into the air and reduced dependence on energy from far away unfriendly places.
How The Energy Efficient Home Tax Credit Can Benefit Homeowners
Before going into detail on this, it is important to direct all decision makers to talk with their tax advisors because we at New Energy Solutions do not claim to be official tax advisors. I do have a PhD, and I have studied this information, and I have a background in energy conservation that goes back many years. It is therefor reasonable for me to provide information and analysis. However, I am not an official tax advisor and so people who use these advisors and pay money to them to help do taxes, should take advantage of the fact that they are indeed official tax advisors.
Another important point is to identify the financial benefits that can accrue to a homeowner who wants to benefit from this tax credit. There are four advantages for the homeowner:
A. Thirty percent of a portion of the up front cost can be recovered in the first year. This is because the tax credit is paid by the government and most homeowners pay taxes. A guaranteed thirty percent return on a portion of the money is a good bargain. It is made possible by the government. The total amount that can be gained is $1500. If one were to earn that net amount, it would require more costs such as taxes to get this equivalent savings. So the net gain is more that this amount. This is a good deal for home owners.
B. There is a potential pay back in energy savings that can last a lifetime and that can be very significant. At some point, the savings on the cost of the utility bill pays back the money put into the project. After this, the lower cost of the utility bill is profit for the home owner. Even a small amount of savings every year, can add up to a large amount over time. Saving money is a good thing.
C. The green movement is alive and well in the US. Surveys show that people will pay more for a home that is energy efficient. Bankers will loan more money in what is known as a green mortgage since the cost of the utility bill is lower and the load of the mortgage payment is reduced. The equity value of the home goes up as it becomes more energy efficient.
D. In many cases there are additional benefits that come from making a home energy efficient. Often the home will have a reduced danger of fire. Many times there will be reduced problems from water. Sometimes the carpet and furniture will be protected. Often the comfort of the home increases. Equipment can be down sized, which reduces the expense. Equipment will run less often; thereby reducing the cost of maintenance and replacement. The energy demand of the building is reduced and this opens up the possibility of using renewable energy as a source of energy. In some cases, the need to keep on repainting can be greatly reduced. There are very positive benefits.
The key steps to take advantage of this credit are as follows:
A. Identify products that will qualify for the tax credit. The Department of Energy and the IRS have information on this. Asking for this information from the Internet will produce results. One of the products that does qualify is insulation. Traditional insulation will qualify. More innovative insulation such as radiant barrier and liquid insulation coatings will qualify.
B. Check to see that a Manufacturers Certificate will be available. This will be provided by many of the venders of these products and it is a form that goes to the IRS at tax time.
C. It is important to understand that the 30% tax credit is for the material and not for the labor. We imagine that business people will in some cases adapt to this by charging higher on the material side and lower on the labor side. For the do it your self home owner, it will be very clear what the cost of the materials will be.
D. The product must be placed in service before the tax credit window closes. Remember that there was a carriage until midnight and then it turned into a pumpkin. The open window is in 2009 and 2010. When 2010 is over, the tax credit will then expire. Remember that this is a very good credit and the government will lose lots of money because of this credit. That is why the window is so narrow. Wise home owners will take advantage of a gift from the government while it is available; just as wise farmers will harvest the crop before winter sets in.
How Energy Paint, Or Liquid Insulation Can Help People Get Government Benefits
There are millions of people who can benefit from the governmental benefits that are offered as a reward for making homes and buildings more energy efficient. The three main groups that will benefit are:
A. Home owners who make their homes more energy efficient.
B. Owners of commercial buildings who make their buildings more energy efficient and owners of public and non profit buildings who get indirect benefits from contractors.
C. Contractors who build new energy efficient homes.
This report will not go into detail about all of these situations. We have done other reports on this general subject. What we will note however, is that insulation can be used in all of these situations to save on the cost of heating and cooling. The dictionary definition of insulation is : ” to separate a conductor of electricity, heat, or sound from other conducting bodies by means of something that will not conduct electricity, heat, or sound”. This comes from one of the Webster dictionaries. The key point to understand is that insulation stops heat. The normal flow of heat is to move from a warm place to a cold place. When insulation is placed between these two places the flow of heat is stopped or slowed down.
It is traditional to think of insulation as pink packages of fiber glass or masses of chopped up paper. The visual image is that the mass stops or slows the heat. More space efficient insulation comes in the form of various types of foam. Some of the most innovative and efficient insulation comes in smaller packages and it is predicted that in the future it will help modify home building in a positive way. For the present it is too expensive to be cost effective and we do not currently recommend it.
There are two types of insulation that are innovative and cost effective that we do recommend. One is radiant barrier and the other is energy paint or liquid insulation. Both of these products come from the work done in the NASA Space Program. They were created to provide major insulation with just a small amount of material. The radiant barrier works only by reflection. The paint insulation works both by reflection and by heat traps to stop the heat. Venders of both products will provide Manufacturers Certificates so that both products can be used to qualify for tax credits.
The benefit of insulation (thermal, ceramic) paint or liquid insulation is that it is very cost effective and very flexible and very space efficient. It can go on as a permanent coating in many parts of the home or building. It can be on the roof, the outside walls, the inside walls, the ceilings. It can go in the basement and under the roof just over the attic. Because it will reflect a major amount of heat and then trap a major amount of heat, it is very energy efficient. It can be used to make the home warm in winter and cool in the summer. It over comes many of the problems of traditional insulation.
Insulation paint can be purchased in liquid form. It can also be purchased in bags of small very heat efficient additives. This provides great flexibility, since the quality additives can be mixed in a great variety of paint. Both the pre-mixed paint and the additives that are added to paint, will qualify as insulation.