New Federal Tax Incentives for Adding Insulation to Homes 

For additional information, read the following NAIMA items: Federal Tax Credits Available for Adding Insulation to Existing Homes R-Values for Optimum Home Energy Savings and Comfort

The IRS guidelines state that you will need to retain any retail or contractor receipts from the purchase of energy efficiency products made between Jan. 1, 2006 and Dec. 31, 2007. You will also need a manufacturer’s certification statement, which you should be able to download from the manufacturer’s website. Click here for links to the manufacturer’s certification statements from NAIMA members. Click here for the IRS Instructions on Existing Homes Tax Credit included in Estimated Tax Form

In August 2005, the first national energy bill in more than a decade was signed into law.  It includes Energy Efficiency Tax Credits for making improvements to existing homes.

If your home was built as few as 10 years ago, it is probably among the more than 46 million US homes that Harvard University says are under-insulated by today’s minimum standards. Inadequate insulation is one of the main reasons why the average American home is losing between 10 and 50% of its energy each year.

Tax Credit Eligibility

• Amount of Credit
• Amount of Insulation Needed
• Timing of the Tax Credit and Rules
• Eligibility for other materials for the existing homes tax credit

Recommended Levels of Insulation

Insulation — a Quick, Easy Way to Earn Your Tax Credit...and Save on Energy Bills

Insulating Your Attic, Walls, Floors and Basement

Tax Credit Eligibility

Amount of Credit

• Homeowners are eligible for a tax credit of up to $500 for 10% of qualified energy efficiency improvements such as insulation. So, if a homeowner spends $800 to add the proper levels of insulation to their homes, they could take a tax credit of $80.
• It is our understanding that only the cost of the insulation material counts towards the credit. You should check with the IRS for final rules. If you have a professional install the insulation for you before the rules are finalized, you should have them provide you with an itemized bill so the cost of the material is shown separately from the labor charges. For many types of insulation, such as all loose-fill materials, hiring a professional is highly recommended. (For more info about finding and hiring an insulation contractor click here.)

Amount of Insulation Needed

• Insulation levels must meet the requirements of the minimum model energy code, which is called the 2004 International Energy Conservation Code (IECC for short). The 2004 IECC includes insulation levels for attics, walls, floors, and basements. However, to qualify for the Federal tax credit, homeowners must only meet the level of insulation required for the area they are insulating. For example, a homeowner can choose only to insulate their attic to the levels required in the 2004 IECC and still be eligible for the tax credit. For most homeowners, this will mean adding an additional R-19 to R-30 insulation to their attic. If a homeowner insulates part of their home to a level below the 2004 IECC, this would not qualify.
• Click here for specific R-value recommendations for optimal energy savings and comfort. These R-values should meet or exceed the eligibility requirements for the tax credit.
• Click here to learn more about all the places in a typical house where insulation should be installed.

Timing of the Tax Credit and Rules

Please note, the Internal Revenue Service is still developing rules and guidance on this tax credit. Please check with the IRS for specific rules at www.irs.gov. The information in this and related web pages is based on NAIMA’s preliminary understanding of the Energy Policy Act of 2005 as outlined in the Bill.

• A homeowner can spend the money over the course of two years (January 1, 2006 to December 31, 2007) on one project or on several projects until the maximum credit is reached. The credit must be taken in the tax year the improvement was made.
• The Energy Policy Act states that there is no independent verification (i.e. inspection) needed to take advantage of the Existing Homes Tax Credit. Under the IRS rules, a homeowner is expected to keep their retail or contractor receipt for the materials cost with their tax forms along with a Manufacturers Certification Statement for proof.
• All insulations that meet Federal Trade Commission requirements for R-value are eligible for the tax credit. Therefore fiber glass and mineral wool insulation are eligible. (To find out more about choosing an insulation type, click here.)

Eligibility for other materials for the existing homes tax credit.

• Other materials such as windows and doors can also qualify for the existing homes tax credit. The Department of Energy and others may have guidance on buying those products to qualify for the tax credit.
• Other energy efficient products such as certain appliances and heating and air conditioning systems received a tax credit under the Energy Policy Act. The Department of Energy and others may have guidance on buying those products to qualify for the tax credit.
• New homes may also qualify for a tax credit, but that credit goes to the builder and has separate requirements. Click here for information on the new homes tax credit.

Recommended Levels of Insulation

The Energy Bill requires that homeowners meet the levels of insulation outlined in the 2004 International Energy Conservation Code (IECC) to qualify for the Federal tax credit. For simplification, NAIMA has combined the levels required by the IECC with the recommendations from the U.S. Department of Energy (DOE) for optimal thermal comfort and developed a state by state map with recommended levels. If a homeowner follows these recommendations for their area, they should qualify for the Federal tax credit and maximize their comfort and energy savings. Savings may vary, find out why in the seller's fact sheet on R-values. Remember, higher R-values mean greater insulating power. Click here for specific R-value recommendations for optimal energy savings and comfort.

Insulation — a Quick, Easy Way to Earn Your Tax Credit...and Save on Energy Bills

Inadequate insulation is one of the main reasons why the average American home is losing between 10 and 50 percent of its energy. Because insulation is a homeowner’s primary defense against heat loss through the ceiling, walls, floor and basement, the Federal government is offering homeowners a tax credit as an incentive to install the proper level of insulation in their homes. Insulation is one of quickest, easiest and most effective ways to improve the energy efficiency of a home. It is an investment that keeps paying off with better comfort and energy savings for as long as you own your home. The higher the R-value you have in your home, the greater the insulating power.

• Click here to learn more about which areas of your home should be insulated
• Click here to find out where you can upgrade your existing levels of insulation in your home

Insulating Your Attic, Walls, Floors and Basement

Insulating your home properly keeps heated air inside in the winter and cool air inside in the summer. Fiber glass and mineral wool insulation offer the highest R-values that can be achieved in a standard wall and are a proven, cost effective way to insulate any part of the home. Insulation can be added over existing materials and R-values are cumulative (i.e. adding an R-30 batt to an R-19 loose-fill will give the homeowner approximately an R-49). Different types and forms of insulation can be combined (e.g. Fiber glass can be added to existing rock wool insulation.)

• To find out more about choosing an insulation type, click here.
• Click here to learn more about the places in a typical house where insulation should be installed.
  
  

Homeowners should check the following areas to ensure they have the proper levels of insulation and to see if they qualify for the Federal Tax Credit:

Attics

• The attic is one of the largest sources of potential heat loss in a home and often one of the most neglected areas when it comes to insulation, even in homes as little as ten years old.
• Since it is the easiest area of your home to access, it is the first place to start when adding insulation. If your attic is unfinished, you or a contractor can install either fiber glass or mineral wool batt or blown-in insulation in the floor joists.  If the attic is finished, fiber glass and mineral wool blown-in insulations are the best options.
• In most of the country, homeowners will want to add between R-19 and R-30 insulation to what they already have. Click here for specific R-value recommendations for optimal energy savings and comfort. 

Floors

Floors over unheated or open spaces such as garages, porches, and unheated basements need insulation too. Unfaced R-25 or R-19 insulation batts are usually cut into small pieces to fit snugly between the floor joists against sills and band joists. This will also help to control noise.

Basements and Crawlspaces

Heat loss through basements and crawlspaces is often neglected.  But in fact, in an otherwise well-insulated and tight house, as much as 25% of the total heat loss of a home can occur through uninsulated foundation walls and floors (source: ACEEE).  Insulating the foundation walls or floor can save energy and increase comfort.

• If the basement is an unheated space and isn’t used for living area, insulate between the floor joists for the room above, instead of around the exterior or perimeter walls.  This keeps conditioned air in the living areas where it belongs and out of the basement. Use unfaced fiber glass batt insulation which might be supported from below with wire or metal rods if necessary.
• If the basement is heated and used, you need to insulate the basement walls instead.  The simplest method is to build 2 x 4 frames against the concrete foundation walls, insulate with fiber glass or mineral wool batt insulation and cover with drywall.
• If the basement is finished, it is difficult to add insulation without tearing out drywall. Look to other areas of your home for places to add insulation that are easier to access. See attics.
• A crawl space is an unfinished, accessible area below the first floor of a building. Fiber glass or mineral wool batt insulations are the most typical products used to insulate crawlspaces. Unfaced R-25 or R-19 insulation batts are usually cut into small pieces to fit snugly between the floor joists, against sills and between band joists. If you use faced insulation for insulating floors, put the facing up toward the living area. Never leave kraft paper facing exposed. For insulating foundation walls of heated crawlspaces, use either unfaced insulation where the building code does not require a vapor retarder, or insulation with a special facing recommended for exposed applications. If a crawlspace wall is vented, you should not insulate it.

For More Information

Follow the links below for additional information:

• R-value recommendations for optimal energy savings and comfort.
• Determining your current levels of insulation
• Choosing an insulation type
• Areas of your home that should be insulated
• Installing insulation yourself
• Tips on hiring a professional insulation contractor
• Where you can upgrade your existing levels of insulation in your home
• Frequently Asked Questions about the Federal tax incentives