Earn with Insulation: The Inflation Reduction Act
When President Biden signed the Inflation Reduction Act in August of 2022, it had implications for people of all walks of life. Broadly, the act aims to assist Americans by instituting a number of inflation-fighting measures. These include reducing healthcare costs by capping out-of-pocket expenses and lowering premiums, and reimbursing people for prioritizing clean energy and sustainable construction practices.
The latter has the potential to make a significant impact on key players in the construction industry. The federal government has created tax credit programs that incentivize a number of different groups, including builders, homeowners, and developers through three separate initiatives.
They are 25C, 45L, and 179D.
One way that these tax credits can be earned is through a building’s insulation, which plays a vital role in protecting structures from the elements, heat, and cold. Step one in learning how to achieve tax credits is to understand how the Inflation Reduction Act works and what homeowners, builders, and developers need to be aware of when it comes to insulation.
At a Glance: 25C
25C tax credits are available to homeowners for energy-saving retrofits made by the primary resident. Homeowners are eligible for reimbursement of 30% of the costs up to $1,200. That means for a $2,000 reinsulation job, $600 can be claimed back.
From an insulation perspective, the first place a homeowner should consider re-insulating is the attic space. Heat rises, and homes lose 65% of their energy through the attic. Beginning in the attic can have a substantial impact on the size of a household’s energy bills.
“The attic is going to give customers the most bang for their buck, and it is the easiest place to install insulation on an already built home, which translates to savings on labor costs too,” said Joseph Goley, manager at Goley Insulation. “After the attic, we recommend ensuring rim joists are insulated as well as basements and crawl spaces.”
Rim joist insulation is essential because the structural components are typically only backed by sheathing and then cladding such as brick or siding. If rim joists are not well-insulated, it can lead to a host of problems, including air, moisture, and pest intrusion.
Many insulation contractors will use fiberglass batts in this scenario, but closed-cell spray foam is the optimal solution. It provides a complete seal against air, water, and bugs, and it will not shift or fall out because it is directly applied to the joist. It also delivers very high insulation values depending on the thickness selected. The same idea applies to basements and crawl spaces, where spray foam is recommended to keep below-grade areas from becoming cold, damp, or filled with pests.
25C can be claimed by homeowners annually for upgrades made through December 31, 2032.
At a Glance: 45L
The second available tax credit is 45L. These tax credits are also available in the residential construction arena, but they are earmarked for builders. Those who seek to take advantage of 45L must prioritize energy-saving measures for their new residential projects, including both single- and multi-family construction. Proper product selection and expert installation of insulation solutions can play a major role in achieving 45L. There are other considerations as well, including cooling and heating equipment; water heaters; the thermostat and ductwork; ENERGY STAR® lighting and appliances; and windows, skylights, and doors. Builders are advised to be mindful of a holistic approach to sustainable building that takes all of these factors into account.
To achieve the requirements that earn builders 45L tax credits, single family homes must meet the ENERGY STAR Certified Homes V3.1 program 2021 IECC prescriptive envelope standards. Builders that fully qualify will earn a federal tax credit of $2,500 per home. Builders can also earn up to $2,500 per unit for multi-family structures.
In addition, builders may also qualify for up to $5,000 back in tax credits per home (or per unit for multi-family) by adhering to the Department of Energy’s Zero Energy Ready Home (ZERH) program.
At a Glance: 179D
The final component of the Inflation Reduction Act that applies to construction professionals is 179D. This tax incentiveis valid for commercial construction stakeholders specifically and is earned by installing energy-efficient HVAC units, building envelopes (including the insulation), and LED lighting for new or retrofit construction.
For large-scale projects such as these, proper insulation can pay long-term dividends when it comes to reducing energy costs across the life of the structure. Expert insulation contractors can help identify which insulation solution is best for a customer’s commercial project – fiberglass, mineral wool, cellulose, spray foam, or foam board.
In terms of tax credits:
- Starting in 2023, the base deduction rate starts at $.50 per square foot for 25% improvement against ASHRAE 90.1 baseline and increases incrementally up to $1.00 per square foot for a 50% improvement.
- A bonus deduction is available for projects meeting prevailing wage and apprenticeship requirements. This bonus deduction starts at $2.50 per square foot and increases ten cents for each percentage improvement up to $5.00 per square foot.
This applies to new build or renovation projects. These structures are measured against ASHRAE Standard 90.1, the benchmark for commercial building energy codes in the United States.
Finally, architects can reap the rewards as well. Those in charge of designing energy-efficient buildings owned by the government and other tax-exempt entities may also qualify for the 179D rebate.
Why It Matters
“When we are working with a customer, we put a premium on understanding their needs and designing a solution that best fits,” said Goley. “We will never sell a customer on something they don’t need, and everyone on our team prides themselves on being educators. With the Inflation Reduction Act, step one is awareness, and we have taken it upon ourselves to advise customers on how to make energy-efficient insulation more affordable.”
Prioritizing insulation is a rising necessity in all construction markets. Global climates are shifting, and energy costs are on the rise, so owners, builders, and developers need to stay apprised of the ways they can set themselves up for success. This is why the Inflation Reduction Act is so critical right now. It is specially designed to boost the economy in ways that can help the long-term health of our built environment.
Finding the right partner on this front can help customers make the most of these tax credits. Goley Insulation will conduct a site visit and a cost-free evaluation to help identify opportunities for insulation on their home, multi-family development, or commercial building. In addition, the team will provide a road map on how to apply for the tax credit rebates so customers can more easily navigate the process of how to earn them.