Yes, we all know that these improvements will save money, but are they a good investment?  Here is a quick and easy way to figure out how much to invest in energy savings using the cost of money and return on investments.

Let’s say our home averages $200 per month in utility bills.  Given an average home, it is pretty easy to drop a bill by 20% or $40 per month.  This is pretty basic stuff like air sealing, switching to a programmable thermostat, installing a radiant barrier, better attic insulation, duct sealing, changing light bulbs and new air filters just to name a few projects.

So, if you could drop your bill by $40 per month it would put an extra $480 in your pocket over the course of a year.  It’s not retirement money, but I’m sure you will find something to do with it.  If you have a higher bill then the total will be even larger.

This is just like getting an extra $480 bonus at work, but it’s actually BETTER?  Why?  This is AFTER TAX MONEY.  Which means if you were in the 20% tax bracket, you would have to EARN about $575 to end up with $480.

Now the REAL value is $575 per year.  Ask yourself “How much would I be willing to invest to get a $575 bonus EVERY year”?  Currently, in the investment world a 10% GUARANTEED RETURN is impossible.  However, if you were to invest up to $5,750 in energy improvements and generate $575 in savings you would get a 10% return on your investment. In fact, on most homes you could probably get this much savings with less than $3000 worth of improvements which would result in over a 20% return on investment.  During a tough economy, this is a SPECTACULAR RATE OF RETURN.

This is why so many people are spending (investing) the money to increase the energy efficiency in their homes.

Finally, all these numbers and assumptions are based on energy rates staying exactly the same.  Over the long haul, do you REALLY think rates will stay the same?  If rates go up then the payback and return on investment is even greater.

Is it worth it to invest in energy efficiency improvements?  Unless you can guarantee at least a 10-20% return on your investments the answer is YES.

If you recall there was much excitement when the energy tax credits were extended or revised for 2009-2010.  The 10% tax credit was raised to 30% and the maximum of all tax credits for the period between 2009-2010 was raised from $500 to $1500.

Then, in the Spring of 2009 it was determined that the definition of insulation was expanded to reference the 2009 International Energy Conservation Code (IECC).  Since radiant barrier is not specifically mentioned in the building code, it has been unclear whether or not they qualify.

In December 2009, there was a meeting between the representatives of the reflective insulation industry and the IRS.  In this meeting, representatives presented the case for how radiant barriers should be included to be eligible for the tax credit.

Based on this information, the IRS will allow the tax credit to be taken for products put into service between January 1st, 2009 and December 31st, 2010

It should be noted now that the IRS has NOT made a final ruling on this subject and that this information is NOT binding until a final ruling is made.

The manufacturer’s claim for the tax credit is valid until (and if) the IRS denies the claim.  If the claim is denied, it will NOT be retroactive meaning that you will not be able to claim the tax credit for purchases after the date of the ruling.

Here is my opinion on this.  The IRS probably never intended for radiant barriers NOT to be included.  It’s just how the law was written that because radiant barriers are not specifically mentioned, the fell into a grey area.  Radiant barriers DO help control heat loss/gain and this is really the criteria used to determine if a product contributes to “Energy Efficiency”.  The whole purpose of giving a tax credit is to give incentives to taxpayers to make their homes more energy efficient. Radiant barriers can be an excellent product to move towards these improvements.

For now, I’m comfortable to issue a Manufacturer’s Certification Certificate based on this new information. Please subscribe to this blog for updated information as it becomes available.

I've written several other posts on this that you might be interested in. Check these posts below: