Alabama Tax Incentives for Foam Insulation

Background

• The Energy Policy Act of 2005 established both tax credits and deductions for energy improvements to private homes and commercial buildings. Originally, these were only available for renovations made in 2006 and 2007. However, tax policies were extended through 2008, then once more through 2011 or 2013, depending on the incentive. The American Recovery and Reinvestment Act of 2009 -- the legislation commonly referred to as "the stimulus" -- enhanced many of these energy-efficiency tax incentives.

Eligibility

• Only residential units are eligible for the Residential Energy Efficiency Tax Credit. The insulation renovations must also conform to the prescriptive requirements described in the 2009 International Energy Conservation Code.

  For the Energy-Efficient Commercial Buildings Tax Deduction, commercial structures or those belonging to state or federal government entities are eligible. The deduction is usually awarded to building owners; however, tenants -- such as a business that rents office space -- are eligible if they incur expenditures related to the insulation installation. For renovations completed on government property, deductions go to the agency responsible for the insulation design.

Funding Levels

• For the Residential Energy Efficiency Tax Credit, recipients receive a credit worth 10 percent of renovation costs; the maximum credit amount for all purchases made in the 2011 tax year is $500. Labor costs may not be counted as part of the 10 percent.

  If insulation installation eligible for the Energy-Efficient Commercial Buildings Tax Deduction yields an overall savings of 50 percent on related energy costs, recipients can receive a deduction of up to $1.80 per square foot of the area improved by the renovation. However, if energy savings are lower, those eligible for the deduction could receive as little as $0.30 per square foot in tax incentives.

Expiration Dates

• Very rarely are tax incentives permanent fixtures. Accordingly, both the Residential Energy Efficiency Tax Credit and the Energy-Efficient Commercial Buildings Tax Deduction are set to expire in the immediate future. Insulation installed beyond December 31, 2011 will not be eligible for the Residential Energy Efficiency Tax Credit, while insulation installed beyond December 31, 2013 will not be eligible for the Energy-Efficient Commercial Buildings Tax Deduction.