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Many Consumers Ignore Energy Tax Credits

Climate change, turmoil in the world’s oil regions and consumers’ apparent refusal to drive less, conserve energy and reduce demand means rising energy costs are here to stay.

Yet few consumers take advantage of federal tax credits and related home improvements that could lower energy bills.

Most homeowners (74 percent) are aware of federal tax credits for certain energy-saving home improvements, but only 23 percent took advantage of it on their 2006 tax returns.

That’s despite the fact that 78 percent of homeowners reported that their 2006 heating/cooling costs increased 5 percent or more than their 2005 costs, and only 32 percent believe that their home is already energy efficient.

‘The 2006 Energy Efficiency Tax Credit Survey’ of 1,040 American adults conducted by Opinion Research Corp. for building products manufacturer Johns Manville may sound a bit self-serving, but it is also an eye-opener in energy efficiency — or the lack of it.

The Bureau of Labor Statistics’ April Consumer Price Index reveals all energy costs rose 2.9 percent in the past year, ending in April, but the compound annual rate was a whopping 43.4 percent.

The compound rate is a projection assuming the rate of increase in energy costs over the past three months continues at the same level for the next 12 months.

‘Energy costs are volatile, and as the world’s consumption of energy continues to increase, energy bills are expected to increase,’ said Kateri Callahan, president of the Alliance to Save Energy.

‘Reducing our consumption is the quickest, most cost effective and cleanest way to extend our world’s energy supplies. Homeowners can directly help the situation, and themselves, by making energy efficiency upgrades to their homes,’ she added.

The same Energy Policy Act of 2005 that extended Daylight Saving Time, also allows for a tax credit of up to 10 percent of the cost of materials for qualified home improvements, such as installing Energy Star-rated windows, doors, heating and cooling equipment, insulation and air sealing products.

The federal law, which offers a tax credit of up to $500 per household, was specifically created in response to rising energy prices.

Another provision of the same law provides for a tax credit equal to 30 percent of qualifying expenditures for qualified photovoltaic power generating and solar water heating equipment, up to a maximum credit of $2,000.

Right now the credits are good through 2007 and some states offer additional financial incentives.

A tax credit, by the way, reduces the amount of tax you owe, dollar-for-dollar, as opposed to a tax deduction which only reduces the amount of income against which taxes are calculated.

Even without tax benefits, energy efficient home improvements are a no-brainer in today’s economy.

The U.S. Energy Information Administration’s recently released Annual Energy Outlook 2007, says energy prices are expected to increase steadily through 2030.

‘Savvy homeowners will realize that insulation upgrades quickly pay for themselves. In addition to the energy bill savings, adding insulation makes your home more comfortable for you and your family by eliminating drafts and hot spots. Also, inefficient homes consume more fossil fuels, and in turn, increase the amount of greenhouse gasses emitted into the atmosphere,’ said Mike Lawrence, vice president and general manager for Johns Manville’s insulation division.

He added, ‘There’s also an economic benefit when it comes time to sell your home. According to the U.S. Energy Information Administration, adding insulation and air sealing increases your home’s resale value, and 55 percent of Americans are willing to pay more for energy-efficient home features.’

But there’s the Catch-22.

The survey doesn’t venture why homeowners are not performing more home improvements but the added-value issue may be just what’s causing homeowners to balk at energy-efficient home improvements.

Appraisers say they don’t typically calculate energy improvements in terms of added value because standards are spotty.

Standards are spotty, because the data base of homeowners with energy efficient home improvements remains too small to consider during a typical home sale, refinance or home equity loan appraisal.

Homeowners aren’t compelled to fill in the data base by completing more energy efficient home improvements because they may not realize increased property value from the expenditure.

Remodeling the bathroom, to most consumers, appears to be a better value-enhancing deal than stuffing the attic with insulation.

‘It’s not visibly affirmable. If you walk into a home and see an extra bath, it’s visible. With energy efficiency the only time you are cognizant of it is when you pay the bill. That’s real, but it’s not a selling point,’ said Ted Faravelli, Jr., a San Jose, CA-based expert witness, forensic real estate analyst and managing director for the California Association of Real Estate Appraisers.

Written by Broderick Perkins for www.RealtyTimescom. Copyright