HVAC Tax Credits Affecting Detroit-Area Contractors

Metro Detroiters are experiencing the effects of the 2009 American Recovery and Reinvestment Act. For some, it means new jobs or extended unemployment benefits. For others, it is a way to make home improvements and reap some tax benefits. The act provides tax incentives for people who invest in energy-efficient products like added insulation, exterior windows, and heating and cooling (HVAC) systems.

According to the Internal Revenue Service Web site, "Residential Energy Property Credit (Section 1121): The new law increases the energy tax credit for homeowners who make energy-efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010. Homeowners should be aware that the standards in the new law are higher than the standards for the credit that was available in 2007 for products that qualify as "energy-efficient" for purposes of this tax credit."

There is some verbiage in the act that can be clarified by visiting the U.S. Department of Energy's Web site (http://www.energystar.gov/index.cfm?c=tax_credits.tx_index).

These new tax incentives, along with utility rebates and rebates from equipment manufacturers, have created new customers and added business for some metro Detroit HVAC contractors. One reason may be that people can't afford to move out of their home because they have lost equity in it and are choosing to make the home more "livable." An energy-efficient HVAC system is also a very good selling point when the market improves.

"Many are upside-down on their mortgages or simply don't want to or can't afford to take a big loss on the sale of their house, assuming they could sell at any price," said Craig Jones, owner of Slasor Heating & Cooling in Livonia.

Ed Bartram, owner of Diversified Heating & Cooling Inc. of Farmington Hills, said the resale value of most homes is dropping 40 to 50 percent, and most of his customers are staying put. "Maybe they are upgrading their systems or just doing the necessities to help maintain the value of their home," he added.

"I have given many estimates for new equipment lately and the homeowners have mentioned other upgrades that they are also doing to the home," added Gary Shelly, owner of Air Temp Services in Dearborn Heights.

According to these contractors, their customers seem to have a pretty good handle on how to get tax credits, thanks to media reports and their own research. "The customers that have contacted me for estimates on new equipment seem to know about the tax credits and the utility rebates," said Shelly. "However, the customers I am doing service calls for and where I might recommend a replacement, don't seem to know about either."

Jones thinks that the information pipeline dries up after that, although customers are still asking what local utility companies like DTE Energy and Consumer's Energy are offering. "Homeowners don't know as much about manufacturers' rebates because they usually are offered in the spring and fall only," he said. "They know more about utility rebates because these programs have been running since June 2009 and go into 2011."

Jones thinks that HVAC contractors need to do a better job of explaining tax credits and rebates and considers himself part of the "minority" that do a good job. "The minority do a very good job of explaining all or the features and benefits of the high efficiency product," he said. "However, the majority sell on low prices only. This is evident by the fact that over 50 percent of the utility rebates to date have been due to installations performed by 7 percent of the participating contractors in the program. There are also many contractors that do not offer information about the rebates at all."

Bartram said that selling energy efficiency is a regular routine at his company, which equates to explaining the advantages of upgrading. "We do a load calculation (to match building size to equipment size) on 90 percent of our quotes if permitted to do so and explain why," he said. "We also quote home and duct performance testing."

Shelly thinks his customers would rather know how much they are getting back than the amount of energy they will be saving. "I think we could do a better job of getting that information to our customers," he said. "For most of the quotes I am giving, people are asking more about rebates and tax credits if they buy rather than what they will save in energy costs."

Whether homeowners are educated enough or not, these metro Detroit contractors have seen an uptick in replacement sales and expect the trend to continue. "We have installed more qualifying equipment in December 2009 and January 2010 than ever before," Jones said. "We have installed as many units this January as we did all of the first quarter in 2009."

Shelly is optimistic, too. "I think replacements are up in this down economy because people that have been putting off replacing old equipment want to get it done before these credits expire."

"It has made the phone ring more and we are always promoting better equipment when practical," added Bartram.

Sources:

www.irs.gov/newsroom/article/0,,id=206875,00.html

http://www.energystar.gov/index.cfm?c=tax_credits.tx_index