BY ROBERT P. MADER
OF CONTRACTOR'S STAFF
WASHINGTON — Starting Jan. 1, 2006, provisions of the first comprehensive energy legislation in more than a decade will take effect that will give incentives to consumers and contractors who conserve energy and reduce dependence on fossil fuels.
While much has been reported in general terms in the daily media about what the Energy Tax Incentive Act of 2005, which Congress passed in July, few specifics have been published about what it means to plumbing-and-heating contractors. Much of the impact on their businesses can be gleaned from the conference report of the House-Senate Joint Committee on Taxation.
Contractors can use the tax credits as part of their sales presentation, pointing out to homeowners that they can write off a portion of the purchase price for qualifying equipment. Homeowners, for example, can claim a maximum of $500 for purchasing the highly energy efficient equipment. A practical concern for contractors is what "highly efficient" means when selling heating and cooling products.
For heating, a qualified natural gas, propane, or oil furnace or hot water boiler must have an Annual Fuel Utilization Efficiency ratio of at least 95%. A central air conditioner must have a Seasonal Energy Efficiency Ratio of at least 15 and an Energy Efficiency Ratio of at least 13.
A natural gas, propane or oil water heater must have an energy factor of at least 0.80. An electric heat pump water heater must yield an energy factor of at least 2.0 in the standard U.S. Department of Energy test procedure.
Electric heat pumps must have a heating seasonal performance factor of at least 9, a seasonal EER of at least 15 and an EER of at least 13. Required geothermal heat pump efficiency ratings vary with the type of installation.
A closed-loop product must have an EER of at least 14.1 and a heating coefficient of performance of at least 3.3. An open-loop heat pump must have an EER of at least 16.2 and a COP of at least 3.6. A direct expansion product must have an EER of at least 15 and a COP of at least 3.5.
Homeowners can claim tax credits as well for installing alternative energy equipment, such as solar panels and fuel cells. The provision provides a personal tax credit for the purchase of qualified photovoltaic property and qualified solar water heating equipment that is used exclusively for purposes other than heating swimming pools and hot tubs.
The credit is equal to 30% of qualifying expenditures, with a maximum credit for each system of $2,000. Qualifying solar water heating property means an expenditure for property to heat water for use in a residence if at least half the energy used is derived from the sun.
The provision provides a 30% credit for the purchase of qualified fuel cell power plants. The credit for any fuel cell may not exceed $500 for each 0.5 kilowatt of capacity.
The legislation doesn't forget commercial customers who can claim up to $1.80 per sq. ft. for improvements.
For commercial buildings, energy improvements are compared with a standard reference building that would meet the minimum requirements of ASHRAE Standard 90.1-2001. The energy-efficiency improvements for HVAC equipment, water heating, lighting and the building envelope must improve the energy efficiency of the building by 50% when compared to the minimum standards. DOE plans to issue regulations that explain how that calculation will be done.
The energy-saving steps are intended to be fuel neutral. They may include: natural ventilation; evaporative cooling; lighting controls; day lighting; designs utilizing semi-conditioned spaces; improved fan system efficiency; advanced unloading mechanisms for cooling, such as multipleor variable-speed compressors; onsite generation of electricity, including combined heat and power systems; fuel cells; and renewable energy generation, such as solar energy.
Building owners can claim a 30% business energy credit for the purchase of qualified fuel cell power plants for businesses. Additionally, the law provides a 10% credit for the purchase of qualifying stationary microturbine power plants.
Buildings that can't meet the 50% energy reduction standard can still get money back if an individual building system is certified by a qualified professional as meeting the 50% reduction standard for just that system. The partial retrofit deduction is limited to 60 cents per sq. ft.
Contractors can claim tax credits for buying energy-efficient trucks. The credits are for hybrid vehicles, trucks that run on an alternate fuel such as natural gas and fuel cell vehicles.
The law permits taxpayers to claim a 30% credit for the cost of installing a clean-fuel vehicle refueling station to be used in a trade or business of the taxpayer. Under the provision, clean fuels are considered any fuel at least 85% of the volume of which consists of ethanol, natural gas, compressed natural gas, liquefied petroleum gas, hydrogen, and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel.
Tax credits for a hybrid are based on weight and how much fuel it saves compared with a 2002 vehicle. Contractors can claim a tax credit based on the price difference between a conventional gas or diesel truck weighing 8,500 lb. or more and a hybrid.
For a vehicle that achieves a fuel economy increase of 30%-39%, the credit is equal to 20% of the incremental cost of the hybrid vehicle. For a vehicle that achieves a fuel economy increase of 40%-49%, the credit is equal to 30% of the incremental cost of the hybrid vehicle. For a vehicle that achieves a fuel economy increase of 50% or more, the credit is equal to 40% of the incremental cost.
The credit is subject to certain maximum applicable incremental cost amounts that are based on the weight of the truck. For a qualifying hybrid truck weighing from 8,500 lb. to 13,999 lb., the maximum allowable incremental cost amount is $7,500. For a qualifying hybrid weighing from 14,000 lb. to 25,999 lb., the maximum allowable incremental cost amount is $15,000. For a qualifying truck weighing more than 26,000 lb., the maximum allowable incremental cost amount is $30,000.
If the day ever comes when contractors are driving fuel cell trucks, the tax credits for that are based on the weight of the truck. Vehicles weighing less than 8,500 lb. are eligible for an $8,000 tax credit. For trucks weighing from 8,500 lb. to 13,999 lb., the credit is $10,000. The tax credit is $20,000 for vehicles between 14,000 lb. and 25,999 lb., and $40,000 for any truck weighing 26,000 lb. or more.