Buildings as Infrastructure:
Analyzing the Inflation Reduction Act

Efficiency Incentives

The IRA restores and increases tax incentives for green buildings, including:

​​

25C Nonbusiness Energy Property Credit (Sec. 13301)

IRA extends the Nonbusiness Energy Property Credit from December 31, 2021 to December 31, 2032. It permits annual tax credits equal to 30 percent of the amount paid for qualified energy efficiency improvements and residential energy property expenditures, generally up a total $1,200 annual limitation. The provision also adds a tax credit (limited to $150) for home energy audits conducted by certified home energy auditors that provide the most significant and cost-effective energy efficiency improvements provided the taxpayer meets certain substantiation requirements.

 

​25D Residential Clean Energy Credit (Sec. 13302)

IRA extends the tax credit under Section 25D to December 31, 2034, to provide federal income tax credits for investments in residential clean energy (e.g., solar, wind, fuel cell). The credit rate is applied to the cost of such property at the rate of 30 percent for property placed in service between 2022 to 2032, 26 percent in 2033 and 22 percent in 2034. The new provision would eliminate the tax credit for biomass fuel property and replace it with a credit for certain battery storage technology with a capacity of no less than three-kilowatt hours.

 

179D Energy Efficient Commercial Buildings Deduction (Sec. 13303)

IRA raises the tax deduction under Section 179D for commercial building construction from $1.80 per square foot to up to $2.50-$5.00 per square foot based on extent of energy efficiency and provided certain wage and apprenticeships requirements are satisfied. The IRA expands eligibility for the deduction by decreasing the minimum efficiency requirement from 50 percent to 25 percent. Further, it creates an alternative deduction for energy-efficient improvements and renovations of existing properties, allowing for a similar $2.50-5.00 per square foot credit for retrofitting buildings five years or older with energy-efficient technology. Application of the new and increased deductions applies to dwelling units acquired after December 31, 2022, and the overall extension of the credit applies to dwelling units acquired after December 31, 2021. Additionally, the IRA permits tax exempt organizations to participate in the program by allocating the section 179D deduction for the installation of an energy-efficient commercial building on land owned by a tax-exempt entity to the “person primarily responsible for designing the property,” as opposed to the owner for both new construction and retrofitted buildings.

 

​45L New Energy Efficient Home Credit (Sec. 13304)

IRA extends the energy-efficient home credit in Section 45L through December 31, 2032. It increases the credit amounts for single-family dwelling units that meet the proper Energy Star Single-Family New Homes National Program Requirements or most recent Energy Star Manufactured Home National program requirements to $2,500. Such units that are also certified zero energy homes would receive a $5,000 credit. Moreover, multi-family dwelling units that meet the applicable Energy Star Multifamily New Construction National Program Requirements can receive a $500 credit. If such a multi-family unit is a certified zero energy home, may receive a $1,000 credit. If residences that are part of an eligible building meet certain prevailing wage requirement a bonus credit amount is available at $2,500 for eligible residences and $5,000 for those certified as zero energy.

​

Extension and Modification of Energy ITC (Sec. 13102)

IRA extends the energy investment tax credit for facilities that begin construction before January 1, 2035. It also makes available a six percent base rate and 30 percent bonus rate for certain geothermal heat pump properties, with the base rate and bonus rate reducing depending on the year construction begins (beginning in 2034). 

 

Extension and Modification of PTC Electricity Produced from Certain Renewable Resources (Sec. 13101)

IRA extends the production tax credit (PTC) for facilities that being construction before January 1, 2025. In addition to the existing eligible technologies of wind, biomass, municipal solid waste, geothermal, hydropower and marine and hydrokinetic energy, this section revives the PTC for solar facilities and extends the PTC for geothermal facilities. Facilities placed in service after December 31, 2021 are eligible to receive full value credits under this section. Facilities may receive a base credit rate of 0.3 cents per kilowatt hour or a bonus credit rate of 1.5 cents per kilowatt hour, so long as they fulfill prevailing wage and apprenticeship requirements. The credit remains subject to an inflation adjustment and the bonus rate would be 2.6 cents per kilowatt hour in 2022. Facilities that satisfy domestic content requirements will receive an increased rate of 10 percent. The credit rate may also be increased by an additional ten percent for qualified facilities in an energy community.

​

Improving Energy Efficiency or Water Efficiency or Climate Resilience of Affordable Housing (Sec. 30002)

$1.03 billion

IRA appropriates $837.5 million to HUD for direct loans and grants to fund projects that improve energy efficiency, water efficiency, indoor air quality or sustainability; projects that implement low-emission technologies, materials or processes and projects that address climate resilience. The section also appropriates $60 million for HUD to administer and oversee implementation of the program; $60 million for expenses of contracts administered by the HUD Secretary; $42.5 million for energy and water benchmarking, and the associated data analysis and evaluation, of properties eligible to receive grants or loans. Eligible recipients include owners or sponsors of low-income housing and housing for the elderly or disabled.

​

Residential Rebates

IRA provides nearly $9 billion for states to issue rebates to homeowners for whole-home retrofits and for efficient heat pumps, heat pump water heaters, and other electrical equipment. Most funding would be for low- and moderate-income households.

​

Home Energy Performance-Based, Whole-House Rebates (Sec. 50121)

$4.3 billion

IRA appropriates $4.3 million to establish a program to extend grants, up to $4,000 or 50 percent of the cost of a project, to a HOMES rebate program to provide homeowners and aggregators rebates for house energy saving retrofits. Rebate applicants must provide a plan outlining reductions in home energy use, comparisons in monthly and hourly weather normalized energy use before and after the retrofit, value savings and quality monitoring. This section encourages the HOMES rebate program to provide rebates to low- and moderate-income households.

 

High-Efficiency Electric Home Rebate Program (Sec. 50122)

$4.5 billion

IRA appropriates about $4.3 billion to state energy offices and $225 million to Tribal governments to assist with developing high-efficiency electric home rebate programs. Applicants must present a plan to verify income eligibility for those seeking a rebate.

​

Rural Energy for America Program (Sec. 22202).

IRA appropriates about $2 billion to USDA for wind, solar, hydrogen, hydropower, geothermal, biomass, and energy efficiency programs for rural farmers and small businesses under the Farm Security and Rural Investment Act of 2002.