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The Inflation Reduction Act Signed into Law – Aspects to Consider Leveraging for Your Business

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President Biden signed the Inflation Reduction Act (IRA) of 2022 into law on Tuesday, August 16, 2022. One of the largest legislative packages that’s been moved in years, the IRA is an all-encompassing climate change, healthcare, and tax bill.

ACCA opposed the overall legislation because the costs would burden small businesses and their employees. The bill will also disadvantage non-union HVACR contractors. However, some aspects of the legislation are really exciting for the HVACR industry.

Most notably, the incentives to transition from fossil fuels to electric, if paired with a focus on proper installation, service, and maintenance, could be a real boost for HVACR contractors. Here is a breakdown of other aspects of the bill you might want to consider leveraging with your customers.

Tax Incentives

  • 25C: The bill includes a long-term extension and expansion of the renamed Energy Efficient Home Improvement Credit (25C) tax incentive. The incentive is extended for 10 years, limited to 30% of the cost of qualified products or equipment, and as a general rule, is limited to $1,200 annually. Certain energy property types, such as central air conditioners and natural gas, propane or oil water heaters, furnaces, or hot water boilers, are limited to a maximum credit of $600. Other product types, such as electric and natural gas heat pumps and identified biomass stoves, are limited to $2,000. The new provision provides a credit for certain electric panel board replacements or enhancements and allows up to $150 for energy audits. In addition, the legislation includes an electric appliances rebate program for low and moderate-income customers and provides $500 million in Defense Production Act funding for heat pumps and tax credits for thermal energy storage.
  • 179D: ACCA scored a victory in making the Section 179D tax deduction permanent a few years back. Thanks to the IRA, the deduction has been significantly increased from the current maximum of $1.88 per square foot to $5 per square foot. This increase was made to reward the construction of energy-efficient commercial buildings, including multifamily buildings that are four stories or taller. Energy-efficient ground-up construction, along with energy-efficient retrofits of older buildings, will also be eligible. Furthermore, real estate investment trusts will now be able to utilize 179D tax deductions to compute the REIT’s earnings and profits.
  • 45L: The extension of tax incentive 45L includes:
    • A credit of $2,500 for a single-family home acquired before January 1, 2025, that complies with the Energy Star® Single-Family New Homes National Program Requirements 3.1.
    • A credit of $2,500 for a single-family home acquired after December 31, 2022, which complies with the Energy Star Single-Family New Homes National Program Requirement 3.2.

Either way, the homes must also comply with the most recent Energy Star Single-Family New Homes Program Requirements applicable to the home’s location or the most recent Energy Star Manufactured Home National Program requirements as in effect on the latter of January 1, 2023, or January 1 of two calendar years before the date the home was acquired.

    • A credit of $5,000 if the home meets the same requirements for the $2,500, plus the requirements of which they are certified as a zero-energy ready home under the zero-energy ready home program of the Department of Energy as in effect on January 1, 2023.
    • High-efficiency Electric Home Rebate Program: One of the components of the IRA is the newly created High-efficiency Electric Home Rebate Program, which provides state energy offices with funds to give low and medium-income homeowners and landlords a rebate of up to $8,000 on qualifying heat pumps. The bill also provides additional rebates to upgrade electrical panels, ventilation, and home wiring. While $4.3 billion has been appropriated for the rebate program, it will be up to individual states to make the rebate available to residents.

Specific Upgrades Eligible for Rebates (must be certified by the Energy Star program)

  • Heat pump for space heating or cooling: $8,000
  • Heat pump water heater: $1,750
  • Electric load service center upgrades: $4,000
  • Insulation, air sealing, and ventilation: $1,600
  • Electric wiring: $2,500

In addition to individual rebate limitations for each appliance, the rebate is also limited based on the income of the homeowner/tenant.

Fuel Switching Incentives: Several states have already implemented policies to encourage fuel-switching while others have prohibited it, making implementing the rebate uneven across states.

Barton James

Posted In: Business Development, Government, Taxes, Top Priorities

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