In the new energy law, the United States Congress mostly lavished tax breaks on its usual fossil-fuel favorites - coal technology, gas distribution lines, oil and gas exploration, oil refineries, etc. Now, that is not to say that out of the $14.5 billion energy package, there aren't a few tax credits that might help some in the HVAC industry.
Here's a quick summary of some relevant changes, courtesy of my friends at ICF Consulting, who must have actually read the entire 1,700 plus-page report.
Commercial and industrial buildings: For 2006 and 2007, expect a tax deduction of up to $1.80 per square foot for energy efficiency upgrades to lighting, HVAC, hot water, and the building envelope that reduce energy and power consumption by 50 percent compared to ASHRAE standards.
Residential buildings: New home builders, for 2006 and 2007, can receive tax credits for up to: $2,000 for new single-family and manufactured homes with annual heating and cooling energy consumption less than half a comparable home; $1,000 for new manufactured Energy Star-qualified homes with annual heating and cooling energy consumption less than 70 percent of a comparable home.
Home improvement during 2006 and 2007 can yield tax credits of up to a lifetime maximum of $500 for efficiency improvements to the building envelope and specific appliances. A maximum credit of $300 is available for qualified electric heat pumps, electric heat pump water heaters, geothermal heat pumps, and central A/C. A maximum credit of $150 is available for qualified natural gas, propane and oil furnaces, and hot-water boilers.
Government buildings: Energy Savings Performance Contracts were reauthorized through September 2016. Grants are available to states for energy-efficiency upgrades in public buildings.
Programs and studies: An HVAC Maintenance Consumer Education program will be initiated, with the Department of Energy and U.S. Environmental Protection Agency sharing responsibility.
There were certainly more than these few items detailed in the voluminous report. Solar energy got its first big boost since the last personal-use tax credit was in effect from 1979 to 1985. A homeowner who installs a solar-powered hot water system (for hot water heaters, radiant floors, or radiators) can receive a credit of up to $2,000 per system.
You might surmise that the impact of these tax credits is going to be somewhat minimal for the bread-and-butter business conducted by most HVAC companies - and, you might be correct.
The belief that "all business is local," may cause one to feel that regardless of the federal or state subsidization that comes your way, getting customers to substantially change their buying behavior isn't all that easy.
However, consider this: Utility company rebates for electric heat pumps - in start-and-stop existence for more than 20 years - have subsidized the growth of heat pumps from next to nothing to nearly 2 million units each year. That's nearly 25 percent of the total shipments of central A/C and heat pumps in the United States.
Today, utility rebates aren't as prevalent in the market as they were 20 years ago. It's a sure bet that with the new efficiency standard, the top-end rebates won't be available for 13-SEER products.
How many customers do you have that are clamoring for an 18-SEER condensing unit or heat pump - even with a rebate, or with regard to the 2005 Energy Act, a $300 tax credit?
Yes, the tax incentives may have some short-term benefits during 2006 and 2007. Though, if you're an HVAC contractor, you might want to rely primarily on the people within your own four walls to continue to provide comfort and value to your customers. It's a tried-and-true method for transforming a market - one person at a time.
Sources: www.forbes.com, www.icfconsulting.com/energyact, www.smartmoney.com/taxmatters.
Mike Murphy is editor-in-chief. He can be reached at 248-244-6446, 248-244-2905 (fax), or firstname.lastname@example.org.
Publication date: 08/29/2005