Early reports suggest the federal government's stimulus package has sparked renewed interest among some customers to buy energy-efficient windows and doors, install more insulation, and improve their roofs. In this special section, we explore three key dealer-related sections of the American Recovery and Reinvestment Act of 2009 and how they could help give your business an extra jolt.
The American Recovery and Reinvestment Act of 2009 (ARRA) comes at an opportune time for building material dealers. Intended to boost the overall economy, the stimulus package also advances energy conservation policy with more than $4 billion earmarked to create, extend, or remove dollar limits on tax credits for energy-related home improvements and renewable energy systems. ARRA gives LBM dealers' customers–particularly remodelers–a way to jump-start their businesses while helping their clients save money and create a more energy-efficient future. But what exactly does the legislation say? Who can apply for the credits, and what kind of documentation is required? Let's start with three obvious candidates for the credits: windows, doors, and skylights.
According to the U.S. Department of Energy (DOE), heat loss through windows can account for anywhere from 10% to 25% of a homeowner's heating bill. In climates where air conditioning is in steady use, the DOE says that energy-efficient windows can reduce electricity consumption up to 15%.
Before ARRA was signed into law on Feb. 17, "energy efficient" meant Energy Star-qualified. That qualification is and was based on ratings certified by the National Fenestration Rating Council (NFRC). That group's ratings take into account some or all of five criteria: U-factor, solar heat gain coefficient, visible light transmittance, air leakage, and condensation resistance.
In 2006 and 2007, "Energy Star-qualified" meant a window was eligible for the $200 federal tax credit available at the time. To do so, a window had to match NFRC ratings for one of four specified climate zones. (See the window selection tool on the Efficient Windows Collaborative website, www.efficientwindows.org.)
But to qualify now as "energy efficient" under ARRA, Energy Star standards are beside the point. Only the U-factor and solar heat gain coefficient matter.
U-factor measures resistance to heat flow on a 0 to 1.2 scale. The lower the rating, the greater the resistance. To qualify for tax credits, a window or door's U-factor must be 0.30 or less, regardless of climate zone.
Solar heat gain coefficient (SHGC) measures how well the window blocks heat gain from the sun. SHGC is measured as a number between 0 and 1. The closer to zero, the more efficient the window. To qualify for credits, the SHGC of the unit must be 0.30 or less.
Winners and Losers
The 0.30 / 0.30 standard is stringent. It's so stringent, in fact, that skylights, which make up between 2% to 3% of the total fenestration market, have been all but eliminated for tax credits.
As for storm doors and storm windows, the IRS in June issued guidance permitting credits so long as the storm door or window, in combination with the window or door it covers, meets the 0.30 / 0.30 standard and complies with IECC rules.
Nils Petermann of the Efficient Windows Collaborative in Washington estimates that "between 15% to 20% of available product types" qualify for tax credits using the 0.30 / 0.30 standard. In contrast, roughly 53% of the windows sold in 2006 and 2007 were Energy Star-qualified.
But Petermann also notes that his estimate of 15% to 20% is changing as quickly as manufacturers can upgrade glass packages or product design. Low-price leader Window World, for instance, offers a $278 product eligible for tax credits.
The low cost of a window job relative to more expensive renovations means that tax credits can be a powerful closing tool for dealers' customers.
"If it's a $5,000 deal and they're getting $1,500 back, that could swing it one way or another," says Maurice Forde, owner of Forde Windows & Remodeling in Northbrook, Ill. Not to qualify, says Brien Murphy, owner of EZ Energy Exteriors, in Pittsburgh, puts companies at a "horrible disadvantage."
To ensure that the door or window being ordered qualifies, check for the National Fenestration Rating Council label or look into the NFRC's directory of certified products.
Another place to look is the door or window supplier's website. Many provide rating information for individual products.
Some, such as Ohio door maker ProVia Door, feature downloadable NFRC labels. When the homeowner goes to file IRS form 5695, they will need to submit that label. The supplier may also offer a letter certifying that the windows or doors qualify for tax credits under the ARRA. Those letters are recommended but are not required by the IRS.
The tax credit is applied to the amount of the sale minus installation cost, so clients need to know that installation cost. Some window replacement companies already post those costs on their websites. For example, 1-800-Hansons, a windows and siding company in Madison Heights, Mich., states on its site that "16% of the contract price of Hansons' installation jobs is typically allocated to installation labor." So for a $10,000 job, the tax credit would be applied to $8,400, and result in a $1,500 credit.
Not all purchasers may qualify for either the federal or state credits, so builders and remodelers should include a disclaimer in their contracts advising clients to consult with a tax adviser when preparing their taxes.
–Jim Cory is editor of Replacement Contractor.