Mark Bergman

How Your Home May Qualify For Bailout Cash

Energy-Efficient Upgrades Yield Valuable Tax Credits; Perks for the New Pellet Stove

I'm not among the one-in-nine homeowners who currently qualify for aid under the new federal housing-rescue plan. But Uncle Sam may still foot the bill for nearly $19,000 worth of upgrades at my house. And he could for you, too.

Potentially lucrative new and expanded tax incentives for energy-efficient and renewable-energy home improvements may offer some consolation to homeowners who feel they are falling between the cracks with the government's various economic stimulus efforts.

They include up to $1,500 in tax credits for adding qualifying windows, doors, insulation, roofs, heating and cooling equipment, water heaters and even wood and pellet stoves to your house in 2009 and 2010. Perks for installing pricier solar technology, small wind-energy systems or a geothermal-well system include a tax credit of 30% of qualifying expenditures with no upper limit through 2016.

The credits helped spur Joe Lombardi of Pleasant Valley, N.Y., to recently sign a contract for a solar-electric system with Hudson Valley Clean Energy in Rhinebeck, N.Y. He expects to get about $10,500 back via the renewable-energy credit on a system costing him roughly $35,000 after a state rebate. He also plans to invest in a heat pump to work in conjunction with the new solar system, which could net him another $1,500 via the energy-efficiency credit. "That's significant," says Mr. Lombardi, who has been considering investing in a solar system since the late 1970s. "I'm an environmentalist. ... It also adds value to the house."

Notably, these incentives are tax credits, which lower your tax bill dollar-for-dollar, versus a tax deduction, which trims money off taxable income. The Internal Revenue Service is expected to issue firm guidelines on details of the credits soon, and consumers should consult tax professionals for clarity on filing.

To be sure, consumers still have to put out cash to get the incentives, and the products that qualify are those generally deemed to be at the highest efficiency levels, which can cost more. Plus, the $1,500 energy efficiency credit currently lasts only last two years, which means consumers must find the fortitude to spend at a time when their instinct may be to save. "This is a pretty lucrative deal, and I don't think the government can continue to do it going forward because it's expensive," says Steven Nadel, executive director of the American Council for an Energy-Efficient Economy, a not-for-profit based in Washington, D.C.

The credits fall into two primary camps. One is energy efficiency, which covers certain improvements to an existing home's structural elements, such as windows and insulation, as well as for the purchase of qualifying high-efficiency heating, cooling and water-heating equipment. The second is for renewable energy, which includes solar, wind, geothermal (heat generated from the earth) and fuel-cell technologies (which convert the chemical energy of a fuel, such as hydrogen, into electricity).

In a nutshell, the energy-efficiency tax credit increases to 30% of qualifying costs from 10%, and the cap also rises to $1,500 from $500. (That's a $1,500 total credit for all applicable improvements combined in 2009 and 2010.) It also extends the credit to include stoves that use renewable biomass fuel -- wood, pellets, plants -- as well as to certain roofing materials; in certain cases, installation costs can be included. Appliances such as refrigerators, dishwashers and clothes washers aren't eligible. For new construction, consumers won't qualify for the $1,500 efficiency credit but are eligible to receive the renewable-energy credit and a separate energy-savings incentive.

With the 30% renewable-energy credit, the richest change is that for systems placed into service after 2008, there is no longer a cap on claims (except for fuel cells). Previously, it was $2,000 for solar systems. "It's a big deal -- it's a really big deal," says Jeff Irish, owner of Hudson Valley Clean Energy, which sells solar and geothermal systems. He says he doesn't expect to raise his prices because of the credit, particularly given the current state of the economy. "We just want to sell more systems."

Manufacturers are hurrying to figure out which products will earn credits under the government's rules, which means testing them for various standards of energy efficiency. The shakeout could have significant impact on future product lineups. "We have one wood stove that apparently doesn't qualify, and it's our third best-selling stove," says Dave Kuhfahl, president of HearthStone Quality Home Heating Products Inc. "We're wondering if it will ever sell again."

Still, manufacturers aren't waiting to educate dealers and consumers about this potential sales chit. Hearth & Home Technologies, a division of HNI Corp., mailed a letter late last month to dealers of its Harman-brand stoves with a list of models they could start promoting in conjunction with the credit. "We are trying to be proactive, so when the dead-on rule comes, they are up to speed," says Dane Harman, Harman's founder. One of his dealers, John Enea of Home & Hearth in Cortlandt Manor, N.Y., echoes the sentiment: "The government is helping us sell stoves."

Others are ramping up advertising campaigns that, in essence, will compete for consumers' tax-credit business. Insulation makers such as Icynene Inc. and BioBased Insulation have prominent Web pages outlining details of the federal tax breaks. Same with makers of several brands of high-efficiency tankless water heaters, including Bosch Group, Takagi USA and Rinnai Corp. For its part, Andersen Corp. and has been playing up the $1,500 perk online and is preparing an ad campaign to explain the tax credits.

"We are hoping [the credit] really does inspire people," says Maureen McDonough, Andersen's director of corporate communications. While windows are always a significant investment, she says, "it seems like something people might be more interested in now."

Of course, tax credits can only do so much to stanch the spending slowdown amid rising unemployment, which last month surged to the highest rate since 1983.

And in the case of solar electric and geothermal systems, costs can still be in the tens of thousands of dollars even after the tax credit. For instance, an estimate I received this year for a solar system to power my electricity clocked in at $49,003 after a state rebate. The new 30% federal tax credit would knock an additional $14,701 off the bill, while a $5,000 state tax credit would help some more.

But that would still leave me with some hefty out-of-pocket expenses. A less-expensive solar system to heat water would cost about $4,111, down from $9,135 after a 30% federal credit and 25% state credit. If I invested in both solar technologies, and tossed in, say, new qualifying insulation, I'd be looking at nearly $19,000 back from the federal government in tax credits over the next few years.

However, consumers who spent on some energy-efficient and renewable-energy improvements in 2008 may be out of luck. For instance, the $3,600 I forked over for a wood stove in July apparently won't earn me a dime under the new plans. "The little bit of backlash we are seeing is from people who bought in '08," says Mr. Enea of Home & Hearth.