It's high time to review the HVACR tax incentives that were signed into federal law last year.

The Emergency Economic Stabilization Act (EESA) that President Bush signed into law on October, 3, 2008, includes several tax incentives that will make it easier for home owners, commercial building owners, and state and local governments and school boards to finance and purchase higher efficiency HVACR, plumbing, and energy equipment. Contractors that serve the residential, commercial, and institutional markets should be aware of these tax incentives and promote them when making bids to clients.

Below is a summary of some of the most important provisions for the HVACR industry.

Reinstatement of the $500 Residential Tax Credit for 2009
The Energy Policy Act of 2005 created a popular tax credit for home owners who installed higher efficiency HVAC equipment in tax years 2006 and 2007. The tax credit amounts varied based on the type of the installed equipment, and homeowners could claim up to $500 in cumulative lifetime benefits. For example, a 95% AFUE furnace is worth $150 in tax credits; a 15 SEER or higher central air conditioner is worth $300 in tax credits; and a natural gas, propane, or oil hot water heater with an energy factor of greater than or equal to 0.80 was is eligible for $300 in tax credits.

NOTE: EESA reinstates the residential tax credit for 2009 only. The tax credit IS NOT available equipment installed in 2008.

In addition to reinstating the tax credit for 2009, EESA also expands the list of qualified equipment to include: biomass fuel stoves; natural gas, propane, or oil hot water heaters with a thermal efficiency of at least 90 percent; and asphalt roofs with cooling granules.

Important: The tax credit has a cumulative lifetime cap. Taxpayers that have already claimed the maximum $500 in tax credits in 2006 or 2007 are not eligible to claim further credits.

Click here for a complete list of qualifying equipment and tax credit amounts.

Extension of the Commercial Building Tax Deduction
The Commercial Building Tax Deduction (CBTD) provides up to $1.80 per square foot to owners or designers of new or existing commercial buildings that make qualified improvements that save at least 50% of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001. Partial deductions of up to $.60 per square foot can be taken for measures affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems.

EESA extends the CBTD until December 31, 2013.

Click here for more information about the CBTD.

Extension of the $2,000 Energy Efficient New Home Credit
EESA extends a $2,000 tax credit to homebuilders that install high efficiency equipment and appliances that are certified to achieve a 50% energy savings for heating and cooling over the ASHRAE 90.1-2001 energy requirements. At least 20% of the energy savings must come from building envelope improvements.

This tax credit was set to expire on December 31, 2008 but is extended by EESA until December 31, 2009.

15-Year Depreciation for Qualified Leasehold, Restaurant, and Retail Improvements
A provision in the American Jobs Creation Act of 2004 shortened the depreciation period for qualified improvements to leasehold and restaurant property from 39 to 15 years. The provision applied to improvements that included new HVAC systems or refrigerators, and expired December 31, 2007.

EESA reinstates the allowance for the accelerated depreciation for leasehold and restaurant improvements retroactively from January 1, 2008 until December 31, 2009.

EESA also expands the depreciation allowance to include improvements to retail buildings and new restaurants for 2009.

$2,000 Geothermal Heat Pump Tax Credit

Under the Energy Policy Act of 2005, geothermal heat pumps were eligible for $300 in tax credits. EESA creates a new $2,000 tax credit for home owners who install a geothermal heat pump. The heat pump must be Energy Star certified to qualify for the tax credit. The tax credit can also be used to offset any Alternative Minimum Tax liability.

Note: The geothermal tax credit is retroactive to January 1, 2008, and expires on December 31, 2016.

$1500 Tax Credit for Combined Heat and Power (CHP) Systems

Combined heat and power (CHP), or cogeneration, systems are designed for specialty commercial, residential, and municipal applications. CHP systems are highly efficient means of producing electricity and useful thermal energy, including heating and cooling, from a single fuel source. EESA authorizes a $1500 tax credit for building owners that install CHP systems.

Under EESA, this credit is applied retroactively for expenditures made after January 1, 2008 and expires on December 31, 2016.

Qualified Energy Conservation Bonds and Qualified Zone Academy Bonds

EESA creates a new category of tax credit bonds, named Qualified Energy Conservation Bonds, to finance State and local government’s initiatives designed to reduce greenhouse emissions, including the costs of improving energy consumption in public buildings. Tax credit bonds accumulate interest for the bond holder, which is used as a credit against federal taxes owed. EESA sets aside $800 million in bonding authority for the Qualified Energy Conservation Bonds.

EESA also extends the authority for school systems with low-income populations to issue $400 million in Qualified Zone Academy Bonds in 2008 and 2009. Qualified Zone Academy Bonds may be used for a variety of purposes, including building renovation and repair.