Keep Old Man Winter at Bay
Energy upgrades offer a double payoff, thanks to tax credits
Money invested today in home energy improvements could pay dividends both at tax time and in lower future utility bills. But Sandy Porter, general manager of Elk Remodeling in Fairfax, Va., which specializes in high-efficiency windows and insulated siding, says most customers don't consider the potential payoffs. "They just come looking for replacements because their windows are 20 to 30 years old and they're starting to feel the draft coming through," she says. "It's only after the fact that I get the phone calls from people saying, 'Hey, you saved me $300 on my gas bill.'"
Homeowners can slice their annual energy costs by a third or even half-more in colder climates-if they make their living spaces more airtight, use more-efficient appliances and lighting, and better maintain their heating and cooling systems, federal studies show. And Uncle Sam, hoping to curb wasteful energy use, will throw in an extra bonus: There's a tax credit of up to 10 percent on the cost of most home energy upgrades made in 2006 or 2007.
Some low-cost steps can pay for themselves in less than a year. Install a programmable thermostat, which costs $60 to $150, and you can save 10 percent on energy bills by adjusting temperature down when no one is home. Another 10 percent can be saved by caulking, sealing, and weatherstripping the home's seams, cracks, and openings to the outside. Two common trouble spots: around electrical outlets and recessed lighting in ceilings.
The federal government's Home Energy Saver website designed by the Lawrence Berkeley National Laboratory has a neat trick for testing airtightness with a lit incense stick. If the smoke stream indoors is horizontal on a windy day, buy some caulk.
A tougher decision for most homeowners is whether to put big money toward energy savings-replacing windows and appliances and adding to attic and wall insulation. It all depends on the individual home's age and condition; some utilities can help with energy audits.
The highest-efficiency windows pay for themselves in 6½ years, studies show, but someone upgrading from old single-pane windows could see savings substantially sooner. High-efficiency water heaters, heating, and air conditioning can also pay off handsomely.
But "we're not advocating people rip out perfectly good systems," says Bill Prindle, deputy director of the American Council for an Energy-Efficient Economy. His group and others are pushing for Congress to extend tax credits longer so that consumers have an incentive to choose the more efficient models when the time comes for an upgrade.
The 10 percent tax credit for energy efficiency improvements is capped at $500. Also, there are separate caps for certain items beneath that ceiling: Only $200 can apply to windows, $50 to central fan systems, $150 for water heaters (natural gas or oil), and $300 for electric heat-pump water heaters, geothermal heat pumps, or high-efficiency air conditioning. The tax credit can't be applied to purchases of appliances like refrigerators, clothes washers, and dishwashers, although buying those with an Energy Star rating can save money in the long run. For details: www.energystar.gov, www.ase.org, and www.energytaxincentives.org.
O solar mio! For consumers seeking to make a big home energy change, there's a seemingly large tax credit of up to 30 percent of the cost of a system. But the benefit is capped at $2,000, and a roof photovoltaic solarsystem can easily cost $20,000, so the benefit might come in closer to 10 percent. Some lower-cost solar options eligible for the credit include solar water heating (not for pools) and whole-home solar thermal heating. More information is available at www.findsolar.com.
Other consumers may simply want to install a few compact fluorescent light bulbs in highly used areas. Even though they cost at least five times as much as regular bulbs, they use one third the energy and last up to 10 times longer-paying for themselves in a few months. Wal-Mart recently launched a major campaign to sell each of its 100 million customers at least one CFL bulb within the next year. The government estimates that if every U.S. home replaced just one light bulb with a CFL, the nation "would save enough energy to light more than 2.5 million homes for a year and prevent greenhouse gases equivalent to the emissions of nearly 800,000 cars."
That's the connection between home and environment that Kateri Callahan, president of the Alliance to Save Energy, is hoping consumers begin to realize. "An individual can have a significant impact on reducing the environmental consequences of energy use and at the same time do something good from a personal-finance perspective," Callahan says. "We're not asking them to sacrifice; we're asking them to stop wasting."
This story appears in the December 11, 2006 print edition of U.S. News & World Report.