Propane Incentives in Fiscal Cliff Deal

Find out how you can qualify for tax credits by building with high-efficiency propane systems.

When Congress passed its last-minute legislation known as the American Tax Payer Relief Act of 2012, it did more than avert the so-called fiscal cliff. The legislation also renewed and revised a package of tax incentives for builders and consumers who use energy-efficient propane appliances.

The bill retroactively extended the deadline for two key federal tax credits: the Business Tax Credit for New and Renovated Energy Efficient Residences and the Individual Tax Credit for Energy Efficient Residential Improvements and Appliances. Propane building systems can qualify builders and contractors, and their homeowners, for these and other incentives. Let's look at them one at a time.

Business Tax Credit
The business tax credit of up to $2,000 applies to builders, contractors, or developers who build or significantly renovate homes that reduce heating and cooling energy consumption by 50 percent relative to the International Energy Conservation Code (IECC). Although the tax credit expired at the end of 2011, the legislation retroactively extended it for both 2012 and 2013. That means if you completed a home in 2012 that meets the requirements, your business can receive credit on your 2012 taxes.

One interesting facet of the tax credit is that it is calculated by the "dwelling unit," not the building. That makes the credit particularly valuable for contractors and developers of low-rise multifamily properties, who can claim a credit for each individual unit or attached townhome, notes Shari Shapiro, attorney with the Energy, Environment, and Utilities practice of Cozen O'Connor in Cherry Hill, N.J., and publisher of the Green Building Law Blog.


Installing high-efficiency propane equipment such as tankless water heaters can help builders qualify for a $2,000 tax credit.

The tax credit extension also changes the baseline energy code from the 2003 IECC to the 2006 code. The 2006 code does not require a significant increase in energy efficiency, Shapiro says, but the technical requirements and structure of the codes are different. Be sure your energy rater is using software updated to reflect the current terms of the tax credit to certify compliance.

High-efficiency propane space heating and water heating are very effective tools in meeting the requirements for the tax credit, notes James Lyons, a research engineer with Davidsonville, Md.–based research firm Newport Partners. The credit also stipulates that building envelope component improvements must account for at least 20 percent of the reduction in energy consumption.

"You'll gain a significant amount of that envelope improvement just by building to your current code," Lyons says. The majority of the country uses a more rigorous code than the 2006 IECC baseline. In fact, the 2009 energy codes are roughly 15 percent more energy-efficient than 2006 codes, and the 2012 IECC is another 15 percent more energy efficient than the 2006 code. In many cases, Lyons says, building to your current code and upgrading to high-efficiency propane building systems is enough to qualify builders for the credit.

For the many builders across the country who are already conducting energy ratings on their homes, checking for compliance with this credit is a no-brainer, Lyons says. "For that energy rater to examine compliance with the tax credit is a very easy, low-cost additional step."

Individual Tax Credit
The fiscal cliff bill also renewed the personal tax credit for homeowners installing highly efficient space- and water-heating equipment in the taxpayer's personal residence. As with the business tax credit, the personal tax credit applies retroactively to equipment placed in service in 2012 as well as 2013.

To qualify, propane furnaces and boilers must meet an annual fuel use efficiency (AFUE) of 95 or higher; the credit covers costs up to $150. Propane water heaters must have an energy factor of at least 0.82 or a thermal efficiency of at least 90 percent. Water heaters are eligible for a credit of up to $300. The personal tax credit is capped at a total of $500. (Our product directory can be sorted by efficiency level, product category, and manufacturer to find equipment that meets your needs.)

It's important to remember that these tax credits can be stacked with incentives from local governments and organizations, Shapiro notes. "One area of underutilized incentives are incentives offered by utilities for energy efficiency and green building." Start your search on buildwithpropane.com's Rebates and Incentives page, but be sure to check with your local gas utility or propane company, as incentive programs change frequently.

Combining tax incentives with energy bill savings can lead to remarkably short payback periods for high-efficiency equipment upgrades, Lyons says. Contractors and their customers can easily model annual energy savings using the Energy Cost and Carbon Calculator.

Compare space or water heating systems using the Heating Energy Cost and Carbon Calculator.

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Use the Energy Cost and Carbon Calculator to model energy savings from high-efficiency propane space-heating and water-heating equipment upgrades.

"If you're going from electric water heating to a propane tankless water heater, there's going to be annual energy savings of hundreds of dollars per year," Lyons explains. With incentives, "You can really ratchet down that payback and from there all the savings are gravy for the homeowner." And high-efficiency propane water heaters offer performance benefits, as well, such as endless, on-demand delivery of hot water.

Other Incentives
While the residential builder and homeowner tax credits were the most recent to be renewed by Congress, there are plenty of other incentives available for building with high-efficiency propane systems. The Energy-Efficient Commercial Buildings Tax Deduction, for instance, provides a tax deduction of up to $1.80 per square foot to commercial building owners or tenants who reduce the building's total energy and power cost by at least 50 percent relative to ASHRAE Standard 90.1-2001.

For information about this incentive and other rebates and incentives for propane upgrades, visit buildwithpropane.com/rebates.


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