Inflation Reduction Act & Insulation

What’s available for residential projects in the IRA? 

There are two tax credits available for homeowners and builders - Let’s start with homeowners: 

25C Tax credit – Home Energy Home Improvement Credit 

Who does this credit apply to? 

• Renovation of the taxpayer’s principal residence 

What does the credit cover for insulation projects? 

• 30% of eligible Insulation and air sealing systems expenses up to $1200 
• Up to 150$ for a home energy audit 

• Labor is not eligible to claim 
• The credit available on a yearly basis, beginning 2023 for ten years 

Energy requirements for insulation: 

• Must meet the International Energy Conservation Code (IECC) standard in effect at the start of the year that is two years prior to the year the materials or systems are placed in service.¹ 
• For example, Insulation installed in 2023 must meet the IECC requirements of the 2021 release. Likewise, if your insulation was installed in 2025, you must meet the IECC requirements from the 2023 release. 

How can you claim the 25C tax credit? 

• You must file on your taxes during the 2023 tax cycle (filing in 2024) using IRS form 5695 

^{1 Frequently asked questions about energy efficient home improvements and ..., https://www.irs.gov/pub/taxpros/fs-2022-40.pdf.} 

45L Tax credit – Builder New Home Tax Credit 

Who does this credit apply to? 

• Builders & Contractors 

What types of buildings are applicable? 

• Newly built single-family, multifamily, or manufactured homes built to the DOE Zero Energy Home standard or homes that meet Energy Star 3.2 and two-year old IECC prescriptive standards. 

What are the different credits available meeting the 45L qualifying standards: 

^{† meeting prevailing wage requirements (applies to construction starting after January 30, 2023)} 

Homes built prior to 2025 must meet Energy Star 3.1, homes build after December 31, 2024, will need to meet Energy Star 3.2. Requirements can vary by state – Energy Star keeps a list of these requirements on their website. Manufactured homes must meet Energy Star Manufactured Home National program requirements in effect as of January 1, 2023, or January 1 of two calendar years prior to the credit claim 

What is the prevailing wage requirement? 

Workers employed by the taxpayer claiming this credit must be paid the same or better than the prevailing rates for construction or similar job types in the local market. The Secretary of Labor has a tool to help you find your local prevailing rates. 

What are the specific insulation requirements for Energy Star and the DOE ZERH program? 

Why should builders and contractors take advantage of the 45L Builder New Home Tax Credit? 

For home owners buying your homes, they can expect a price premium when it comes time to sell. Several studies (1, 2, 3, 4) have shown that having an energy efficiency certification increases resale value by between 2 to 5 percent. That could mean a $15,000 premium in a neighbourhood with resale values averaging $300,000.  

There are also the liveable benefits like thermal and acoustic comfort. Did you know noise pollution can increase the risk of heart problems, aggravate stress, reduce focus and mental performance in children and teenagers, and cause loss of sleep. According to the European Environmental Agency (EEA)², roughly 10,000 premature deaths occur every year due to the adverse health effects of noise pollution. A humid indoor environment also causes issues, supplying the ideal conditions for mould to grow and spread, which can lead to asthma and other respiratory problems3. Choosing an energy efficiency standard brings the building envelope, air sealing, and a higher standard of construction to the forefront. 

For home builders – here's a quick example of how the 45L credit can quickly add up. Someone building 30 homes per year – at $2,500 with Energy Star or $5,000 per home with the DOE ZERH – a builder could claim between $75,000 – $150,000 per year. 

^{2 - https://www.eea.europa.eu/themes/human/noise/noise-2
3 - https://www.rockwool.com/group/about-us/our-thinking/indoor-comfort-health-and-safety/indoor-climate/indoor-humidity/} 

Commercial projects: what’s available today 

There is one credit that’s available for commercial construction – 179D: the Energy Efficient Commercial Buildings Deduction 

Who does this credit apply to? 

• Building owners 

What types of buildings are applicable? 

• Newly built and renovated commercial and large multifamily buildings 
• Tax-exempt entities like churches, colleges, private hospitals, and organizations falling under IRC 501(c) 

What credits are included in 179D? 

We’ve mentioned prevailing wage requirements above, what are apprenticeship requirements? 

To get the elevated 179D deduction, a percentage of the projects total labor hours (including contractor and subcontracted work) must be performed by qualified apprentices: 

• Work before 1/1/2023 - 10% 
• Work beginning between 12/31/2022 and 1/1/2024 - 12.5%
• Work beginning after 12/31/2023 - 15%
• The tax payer or subcontractor who employs greater than 4 individuals on a project must have one of those individuals be a qualified apprentice. 
• Qualified apprentices are registered under the National Apprenticeship Act.  

What would taking advantage of the 179D credit could look like for a commercial retrofit project? 

For this example, we will use a 20,000 ft² public school. It’s exterior façade could use an update and boost to the buildings overall energy efficiency. In this case, the owner decides to perform an exterior retrofit to not upset students in the classroom. As well, they decide to upgrade the HVAC system and windows to complete their project.  

At 20,000 ft², the owner makes sure the general contractor is adhering to the apprenticeship requirement noted in 179D. In total, the improve the buildings efficiency over ASHRAE 90.1-2019 by 50%. Taking everything into account – here is how the credits stack up. 

• ASHRAE 90.1-2019 efficiency improvements:
  20,000ft² x 1.00 = $20,000 
• Apprenticeship requirements for this qualified retrofit:
  20,000ft² x 5.00 = $100,000 
• Total claimable credit by the taxpayer:
  $120,000 

While this credit might make up 1% - 10% of the total project cost, this retrofit will save the owner in long term energy costs. Those savings, plus the original 179D credit, will reduce the project payback timeline and a lengthen the life of the build. 

Interested in retrofitting you property and need a little direction? 

We are happy to offer a Commercial Retrofit Solutions Guide to help you get thinking about renovating you're building. We talk about why renovation makes sense, how to plan your retrofit, and offer several details for common retrofit scenarios.