In 2005, Congress established a number of energy-efficiency tax incentives related to housing. These policies include the tax code section 45L credit for the construction of energy-efficient homes, the 25C credit for retrofitting existing homes, and the 25D credit for the installation of power production property in new and existing homes.
Using earlier IRS data for tax year 2009, we previously examined who benefitted from these credits, as well as how homeowners used the credits. Newer 2010 data also allow exploring these energy related investments.
The 25C credit is only available for existing homes. In 2010, the rules were more favorable than today, with a 30% credit and $1,500 limit. Those rules have since been pared back during successive extension efforts. The current form of the credit expires at the end of 2013.
The IRS data indicate that in terms of dollars, energy-efficient windows were the most popular investment, totaling more than $7.8 billion of spending by more than 2.2 million homeowners. Energy efficient natural gas, propane, and oil powered water heaters and furnaces were second, with $5.3 billion in qualified expenditures by almost 1.4 million taxpayers.
In total, more than $26 billion of qualified improvements were made in 2010 in connection with the 25C credit. These expenditures resulted in more than $5.4 billion in tax credits for just shy of 7 million homeowners.
The 25D credit is for installation of qualified power production property in both new and existing homes. The credit is equal to 30% of expenditures, including certain labor costs. And unlike the 25C credit, the 25D program is currently set to expire years from now – at the end of 2016.
The most popular 25D investment in 2010 was the installation of solar panels. 25D qualified solar electric property investments totaled almost $1.5 billion in 2010 for more than 100,000 taxpayers. The second largest category was geothermal heat pumps, with $920 million of installations claimed by almost 73,000 homeowners.
In total, for 2010 there was $2.67 billion of qualified power production investments yielding about $800 million in 25D credits.
Given the rising popularity of items like solar panels, builders are well advised to examine the 25D program for prospective homeowners.
Eye on Housing 
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Is there a similar study related to the number of builders who claimed 45L tax credits for the construction of energy efficient homes?
Great question. Unfortunately, the IRS does not provide similar data for Form 8908, where 45L is claimed. However, I just checked Form 3800, where 45L is mixed with other business credits. In 2010, 13,709 builders claimed 45L for a total credit total of $68.3 million – suggests a little more than 34,000 housings units qualified for 45L in tax year 2010.
Any idea how that stacks up against total unit production in 2010 or what EPA claims as ENERGY STAR Certified Homes production that year? I am trying to see a correlation between E* and the tax credit, many builders have stated that they did not claim the credit even though they met the minimum requirements and were building to E* levels due to other accounting considerations. I am curious as to how much of an effect the tax credit really has on changing the market and influencing builders to make upgrades to construction practices.
I don’t have details comparing 45L and Energy Star, and as an economist I’m not an expert on building codes. However, anecdotally it does appear to be the case that 45L is tougher to reach than Energy Star. And there are some tax complications that NAHB has tried to fix. These include the basis reduction, which reduces the net value of the credit to about $1,300 — and the fact that the home must be owned by the builder before sale to the eventual homeowner.
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[…] Using earlier IRS data for tax year 2009, we previously examined who benefitted from the 25C and 25D credits, as well as how homeowners used the credits. Last year, we examined the 2010 data for these credits. […]