What’s next for expiring energy incentives?
Big tax credits for geothermal and energy-efficient construction
expired at the end of 2016. How will builders respond?
By Jeffrey Lee
The end of 2016 brought a wave of change for
the home construction industry — and not just because of the election of Donald
Several notable energy tax incentives were
allowed to expire after they had been repeatedly extended in previous years:
- Section 25D, which
provided 30 percent tax credits for geothermal, wind, and fuel cell
- Section 45L, a
$2,000 tax credit for builders of energy-efficient homes.
- Section 25C, a
$500 tax credit for energy-efficient improvements.
- Section 179D, a tax deduction for commercial or multifamily building owners who
made their buildings more efficient.
In the past, these provisions were frequently
bundled and renewed with bigger tax issues such as Medicare reimbursement, the
alternative minimum tax, or the research and development tax credit, says J.P.
Delmore, federal legislative director for the National
Association of Home Builders
"The big difference at the end of 2016 as
compared to all the previous years is that there was no must-pass tax item," he
says. The PATH Act in 2015 made several of the major tax fixes permanent, but
it extended many of the energy credits for only two years. In 2016, with all of
the major issues taken care of, the House of Representatives had little
interest in renewing the efficiency provisions, Delmore says. "And with Trump
taking office, they were in a position to toe the hard line and say ‘No.'"
Impact of the Expirations
The section 25D renewable energy tax credits
were being followed particularly closely by the NAHB and construction pros. The
PATH Act extended the 30 percent tax credit for solar technologies until 2021,
but the other technologies — small wind, fuel cells, and geothermal — were left
out. A bipartisan deal to restore the credits for those technologies was never
That means some contractors and their customers
are thinking twice before making large investments in geothermal.
"I would say if there's no extension to the
tax credit, that geothermal sales are going to be reduced dramatically," says
Justin Isaacson, an HVAC contractor and owner of Ike's Heating and Cooling in Nevis, Minnesota.
"I would say if there's no
extension to the tax credit, that geothermal sales are going to be reduced
Without the tax credit, he says, the payback
period will be too high for many customers. That may not affect the decision
for a customer who plans to stay in their house for a long time. "But if
somebody's building a house, and they don't know if they're going to stay there
forever, or they're just doing the heating upgrade, they're definitely not
going with geothermal," Isaacson says. "They're going to be a candidate for a
high-efficiency gas furnace. I'm thinking that propane gas furnace sales and
possibly matching it up with an air-source heat pump, those types of systems
are going to be prevalent."
And while the federal tax incentives have
expired, builders may still be eligible for rebates from their local utility or propane provider.
The Propane Energy Pod Builder
Incentive Program, for
instance, provides up to $1,500 per home for builders constructing new homes
with propane space heating, water heating, and other technologies.
Outlook for 2017
Although a congressional focus on tax reform
could provide an opportunity to revisit the energy incentives, Delmore is
pessimistic about seeing any of the provisions extended in the current
"In the short term, by which I mean the next
two years at a minimum, I don't really see a viable path to revisiting those
tax extenders that weren't extended after last year," he says. "The next reset
opportunity politically would be after the midterm elections if there was some
type of political shift there."
Meanwhile, the expiration of the efficiency
credits is also likely to influence the construction market, Delmore says. The
$2,000 tax credit for builders of energy-efficient homes had been a major
driver for builders to market green technologies more aggressively to their
buyers, so builders may now focus less on green in their marketing. Remodelers,
too, may focus less on educating their customers about energy-efficient
products without the benefit of the $500 tax credit to present them.
On the other hand, consumers have already
become much more aware of the availability of energy-efficient options for
their home, Delmore says. "The visibility of green as a whole is so much higher
now," he says. "I hope folks continue to talk about different options that
buyers have and give them an idea of the financial savings from doing some of