The Inflation Reduction Act (IRA) is directing an unprecedented $369 billion toward energy saving initiatives through tax credits. These tax credits will have numerous benefits including improved energy efficiency, reduced energy bills, and improved home comfort.
These tax credits can be combined with local incentives for even bigger savings! IRA tax credits include:
- Residential retrofit incentives
- New and retrofit commercial incentives
- New home incentives
- Efficient building envelopes through building codes
Here are some key points from the Act.
Residential Retrofit Incentives: Energy Efficient Home Improvement Credit (25C Insulation Tax Credit)
The 25C tax credit (25C refers to the relevant section of the IRS tax code) allows you to receive a federal tax credit equaling 30% of the total cost for a variety of energy efficiency home upgrades on existing homes including qualifying insulation and air sealing expenses.
Qualifying insulation areas include
- Attic insulation
- Wall insulation
- Basement insulation
- Crawl space insulation
As well as many different types of insulation materials if certain levels are met.
How the 25C tax credit works
- Previous law’s credit restored through 2022. Enhanced credit amount applies from January 1, 2023 to December 31, 2032
- 30% of insulation and air sealing materials up to $1,200 (per year)
- Credit available on a yearly basis
- Home energy audits covered up to $150: If your eligible tax credit for insulation and air sealing work doesn’t reach the $1,200 annual maximum, you can also take a 30% credit—with a limit of $150—for any energy audit related costs
Benefits of the 25C Tax Credit for Insulation and Air Sealing
Taking advantage of the insulation tax credit means that you’ll see all the benefits of improving the energy efficiency of your home: lower energy bills, improved home comfort, and a house that’s better for the environment. But there are additional benefits unique to this specific tax credit:
- Available to anyone with Federal Tax Liability: If you pay federal taxes, you can claim your insulation tax credit! This is a national incentive available to any homeowner, unlike many rebate programs.
- Can be combined with other incentives and insulation rebates: The 25C tax credit is a great opportunity for additional savings, making upgrading your home even more affordable.
- Calculated Separately from Heat Pump Upgrades: Insulation and air sealing upgrades are in a separate category from heat pump HVAC systems and heat pump water heaters. This means that you can take both a $1,200 insulation tax credit and a $2,000 heat pump tax credit in the same year, for as much as $3,200 in total tax credit savings!
New Home Incentives (45L)
- Builder credit of $2,500 for single family homes that meet ENERGY STAR Version 3.2 and meet 2021 IECC prescriptive envelope standards
- Builder credit of $5,000 for homes that meet DOE Zero Energy Ready Home standard
- Builder credit of $500 / $1,000 for multifamily units, with incentives increasing to $2,500 / $5,000 when meeting prevailing wage requirements
- Previous law’s credit restored through 2022. Enhanced credit amount applies from January 1, 2023 to December 31, 2032
There are many components to this act and many ways you can save, and tax credits are subject to program changes. Our expert team at Toler Insulating is happy to answer any questions and will work with you to ensure that your insulation work is eligible. Contact our office to discuss your project and how tax credits can help.