The Energy Tax Credit: Is it Worth it? Part 3

By Vernon Trollinger, July 31, 2009, Energy Efficiency, Save Money

How it Works: Insulating & Taking the Tax Credit

Heating and air conditioning account for 50 to 70% of the energy used in the average American home. While air sealing and duct work sealing can improve performance, neither of these is going to compensate for insufficient insulation for the whole house.  Throughout most of the country, the US DOE recommends at least R30 (about 1 foot of blown cellulose or fiberglass) for attic insulation and a minimum of a R13 (a bit more than 3 inches of blown cellulose or fiberglass) in the walls.  Most new houses are built with R13 in the walls but few have R30 in the attic.  

Let's say that our sample starter home has R13 in the attic of settled blown cellulose insulation. To bring it up to at least R30, we need to add a further 17 R-value's of insulation to the attic.  The easiest way to do this is to either apply another 5 inches of blown cellulose or put down un-faced R19 fiberglass batts (about 6 inches thick).

The cost for blown cellulose to cover the 1750 sq. ft of attic space with 5 inches (or .416 feet) is 46 (16 cu ft) bags @ $7.50 each or $345. Some home centers may include the free rental of their blowing equipment as an incentive.  Others may not and rental fees could be as high as $100/day.  To make the insulation work effectively, it must be kept out of ventilation soffits and spread evenly throughout the attic at a consistent density so that no thin spots or hollows are formed.

The cost of unfaced fiberglass batts is 15 batts @ $50 each is $750.   (Our sample house insulation is being added on top of other insulation there is no need for paper craft facing.)  While more expensive than the blown cellulose, fiberglass batts are convenient sizes that can be positioned tightly in place. 

The energy savings are evident right away.  Your home will require less energy to maintain at a comfortable temperature.  Typical heating and cooling costs are cut by 10% (although as high as 30% when combined with air sealing and duct improvement). Assuming you've done a great job as well as air sealed, that first year energy cost savings could be nearly $400.  Factoring in the tax credit depends on the price of the insulation.  Assuming the blower rental is free, the credit from the blown cellulose is $103.50.  If we go with fiberglass batts, it's $225.

So following an initial outlay of $345 to $750 (without installation labor), there's a first year return of $500 to $625.  Adding insulation also evens out the temperature from room to room; your home is more comfortable. 

Let's say now that it's tax time and we've gotten together our receipts,  Manufacturer's Certification Statements, and our 2009 IRS Form 5695.  Let's also say we've fixed up our little example home with triple-pane insulating low-E, argon gas wood-framed windows ($1600), a tank-less water heater ($1200), and added fiberglass insulation to our attic ($750).  Let's also figure that we've air sealed the house and that we installed the windows and insulation ourselves but left the tank-less water heater to an experienced plumber ($1200).   This leaves a total expenditure of $4750.  This means we qualify for a 2009 tax credit of $1425.  This also leaves us with $250 of worth (recall that $5000 limit) of Tax Credit improvement purchases to qualify for in 2010.

Meanwhile, we have also recouped $575 from our energy costs or a savings of about 56%.  Add in the tax credit and that comes to $2000 as a return on a $4750 investment.  That's nearly a 43% return.  Not even a yacht full of Wall Street CEO's could wrangle a deal like that.

What's even better is that Energy Star improvements like these will continue to keep energy costs low for years to come and keep money in your pocket, no matter the age of your home or how long you plan to keep it.  Your home's value will improve, too. And while it might not have a precise financial return, your home will be more comfortable.

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