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The heat is on! It's time to PACE your energy usage

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These pups probably would be cooler inside under the A/C instead of atop the condenser. As a general rule, your cooling system works better when you keep the outside air conditioning unit clear of everything, including pets!

Summer's been official for just a week, but folks in many areas have been dealing with hot temperatures for a while.

Some, including my neighbors who've had air conditioning repair trucks parked in front of their houses for what seems like weeks, already are feeling the often costly effects of warmer weather.

That's why it's a good time to think about tuning up your air conditioning system.

It's also a good time to look into possible governmental help in making your home more energy efficient.

PACE energy use: Property Assessed Clean Energy financing, known as PACE, is a loan program to help businesses across much of the United States and private homeowners in a handful of states finance energy efficient and renewable energy improvements.

Residential PACE programs are typically enabled through state legislation and authorized at the local government level. Municipalities may directly administer residential PACE programs, or through public-private partnerships with one or more PACE providers.

Typical home improvement projects covered by PACE loans include replacing broken or failing heating and cooling systems and hot water heaters; upgrading air sealing and insulation; installing Energy Star doors, windows, roofing and appliances; converting to solar photovoltaic systems; and employing water conservation and resiliency measures, such as seismic retrofits and wind hazard protection.

Lots of help in a few PACE states: As of 2019, according to the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy (EERE), more than 200,000 homeowners have made $5 billion in energy efficiency and other improvements to their residences through PACE financing.

Unfortunately, those statistics come from a limited residential PACE pool.

PACE financing programs for homeowners currently are available in only three states:

  • California, which has 10 active programs,
  • Florida, with four active programs and
  • Missouri, which has three active programs.

Still, that's progress. When I last wrote about PACE financing in late June 2013, there were no residential PACE programs.

With 17 private home PACE loan programs now in place, other states and local governments across the country now have a real-life database they can examine in determining whether to approve PACE in their jurisdictions.

Energy loan repayment and tax issues: Where residential PACE loans are available, qualified applicants can receive 100 percent financing and the property tax payback term can be as long as 20 years.

And rather than a loan you must pay each month, the repayment typically is made as an addition to your property tax bill.

That definitely can help with month-to-month cash flow.

Note, however, that since PACE loans are part of your property tax bill, you need to make sure you can cover the new, higher assessments. If you can't, you could eventually face a tax lien and/or foreclosure.

On the good tax side, however, is that up to $10,000 of your property, as well as other state and local, taxes are still tax deductible on your federal tax return if you itemize.

If you got a private loan instead to pay for home energy equipment replacement, that amount has no tax benefit.

If PACE's direct tie to your property tax concerns you, you could consider refinancing your home loan and taking out extra money to make the energy system upgrades.

Interest on this type of refi money, secured by your home and use in connection with the residence, still is in most instances tax deductible under the Tax Cuts and Jobs Act.

As in all things tax, carefully evaluate your personal circumstances and consult your tax adviser as to how any move might affect, for better or worse, your eventual actual tax liability.

Loan tied to property, not the owner: Another factor unique to PACE loans is that they are attached to the property rather than an individual.

That means the repayment obligation may transfer when a property is sold if the buyer and new mortgage holder agree to assume the PACE obligation.

This special loan set-up alleviates a key concern of homeowners who are hesitant to make major energy improvements because they worry that they may not stay in their houses long enough to get enough energy savings to cover their upfront costs.

Hone sale hindrance or benefit: OK. I'm feeling even through the interwebz some hesitancy here. I get it. I'm a homeowner, too, and I eventually plan to sell my house so I know what my fellow property owners and potential buyers are thinking.

Won't this added cost undercut my sale plans?

As in most things, be they real estate or taxes or life, it depends.

Sure, some buyers won't want any added expenses. Others might, however, see the PACE payback as negligible as long as the systems the loan financed keep their utility costs low.

And a recent economic study of homes with PACE upgrades, the first of its kind, found that PACE is good for the resale value of homes, even after taking into account the financing costs. 

Expanding PACE: While there are relatively few residential PACE options in the United States so far, the commercial component of the program is more widespread.

PACENation, an association that follows and advocates for the programs, says that PACE-enabling legislation is active in 36 states plus D.C., and PACE programs are now active launched and operating in 20 states plus the District of Columbia.

The PACENation map below shows where all programs, both residential and commercial, are available. The interactive map version at the group's website lets you get more information about programs in your area.

PACENation PACE programs map 2019

Other DSIRE-able energy tax breaks: In addition to PACE, many state and local governments offer other incentives for renewable energy and energy efficiency.

DSIRE, or the Database of State Incentives for Renewables and Efficiency, is a comprehensive source of information on such programs. Established in 1995, DSIRE is operated by the N.C. Clean Energy Technology Center at North Carolina State University.

DSIRE also has an interactive map where you can find programs, ranging from rebates to loans to tax breaks, for both businesses and individuals in your state.

Federal home energy improvement tax help: On the federal level, Congress is [slowly] looking into renewing the nonbusiness energy tax credit, popularly known as the energy-efficient home improvement tax credit.

The home energy tax break provisions have been renewed over the years, most recently in 2018 to apply retroactively to the 2017 tax year. 

The latest House version of the extenders bill, a collection of temporary tax breaks that have or soon will expire unless renewed, would expand all of the expired home efficient energy upgrades, including those related to replacing heating and air-conditioning units, through 2020.

The Senate version focuses only on the less expensive, easier to make home improvements.

The House extenders measure was approved on June 20 by the full Ways and Means Committee, but no date has been set for consideration of the bill by the full chamber. The Senate version is pending in the Senate Finance Committee.

Regardless of what kind of federal, state or local help, tax or otherwise, you can get to make your home more energy efficient, now definitely is the time to start thinking about taking care of or upgrading your cooling system.

It's only going to get hotter as the summer progresses.

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