Congress is unlikely to extend by the end of this year several tax incentives used by developers and remodelers that expire on Jan. 1.
The clock is running down on the New Energy Efficient Home Tax Credit (45L), the only federal incentive available for efficiency in new home construction. It provides a $2,000 tax credit to builders and developers for the construction and sale of homes that achieve a 50% improvement in energy efficiency over the 2004 International Energy Conservation Code.
Also nearing an end is the Existing Home Retrofit Tax Credit (25C), which provides consumers a tax credit of up to $500 for the purchase of qualifying energy-efficient products. Remodelers often leverage 25C tax incentives when working with clients.
NAHB is actively working to extend these tax credits.
Both 45L and 25C are traditionally renewed by Congress at the end of each year as part of a package of expiring tax credits.
Commonly referred to as “tax extenders,” this package has become more difficult to pass due to the government’s fiscal belt-tightening.
Because extending these tax credits would increase the deficit, Congress is required to offset the cost of the extension by either cutting spending or raising other taxes. Finding bipartisan “pay-for’s” has been difficult.
Last year, the credits were allowed to lapse for 11-1/2 months before Congress finally extended them retroactively for 2010 and until the end of 2011.
In addition to pushing for an extension, NAHB is working with a broad coalition of product manufacturers to modernize the 25C tax incentive.
In 2009 and 2010, Congress temporarily increased the 25C tax credit to allow taxpayers to claim 30% of the product cost — up to $1,500 — for installing eligible energy-saving retrofits in their homes.
These higher tax credits were involved in more than $25 billion of remodeling activity in 2009, which NAHB estimates was associated with over 276,000 jobs.
For 2011, 25C fell back to its pre-stimulus level of 10% of the installed costs, with a maximum credit for all qualified retrofits of $500. In addition, many products have lower thresholds, which have created confusion among taxpayers.
NAHB and its coalition partners are working with allies in the House and Senate to introduce legislation to increase the $500 cap to $1,000.
In addition, NAHB is proposing to eliminate the lower, individual product thresholds and permit taxpayers to claim labor costs for all qualifying products. For consumers, this would create a more robust — yet simpler — tax credit.
Although the tax extender package has been renewed before without controversy, taxpayers cannot assume that Congress will proceed as it has in the past.
While support in Congress remains high for extending these incentives and lawmakers have renewed these tax credits retroactively in the past, their fate remains in doubt as Congress wrestles with offsetting their costs.
Recognizing the uncertainty confronting small businesses and consumers, NAHB is continuing to urge lawmakers to extend these tax credits in a timely fashion.
For more information, email J.P. Delmore at NAHB, or call him at 800-368-5242 x8412.
