How Did Homeowners Use the Remodeling Tax Credit?


In a previous Eye on Housing post, NAHB examined the geographic distribution of 2009 claims of the $1,500 remodeling tax credit. We now have data from the IRS on specific kinds of energy-efficient and energy producing equipment that was installed in homes to qualify for the program, as reported on IRS Form 5695 (hat tip to Charlie McCrudden of the Air Conditioning Contractors of America for distributing the IRS data).

With respect to the 25C credit for energy-efficient remodeling of existing homes, the data indicate a total of $25.1 billion of qualified expenditures in 2009. This an enormous amount of activity connected to the tax credit program, especially when considering that according to NAHB estimates every $100,000 in remodeling expenditures generates 1.11 full-time jobs.

Because the tax credit in 2009 was limited to $1,500 per taxpayer, not all of this activity generated tax credits. In fact, according to the IRS data, just a little more than 71% of these costs ($5.404 billion versus potential $7.539 billion) were allowed in the 25C calculation due to the $1,500 limit. Moreover, due to other tax rules only $5.172 of the $5.404 billion were allowed as realized as final 25C tax credits.

The first portion of the 25C credit is due to energy-efficient building envelope improvements, with 13% of the 25C claims associated with insulation, 34% with windows and skylights, 9% with doors and another 9% with qualified roofing materials. The second part of the credit dealt with energy-saving appliance installation, with 16% of the total 25C claims connected to heat pumps, air conditioners, water heaters and stoves; 17% with hot water boilers; 3% with air circulating fans used with a natural gas, propane or oil furnace.

The 25D program, which provides a tax credit for the installation of certain power producing property in new and existing homes, is a somewhat smaller program. For 2009 installations, a total of $738 million of 25D tax credits were claimed (with an additional $69 million of 25D credits carried-forward from prior tax years). Of this total, 45% came from solar panels, 9 percent from solar water heaters, less than 2 percent from wind turbines, a surprising 45% from geothermal heat pumps and 1 percent from fuel cell property.

For more information on both tax credit programs, NAHB has published the following fact sheet.

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