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The Inflation Reduction Act: What Does it Mean for Residential Contractors?


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The Inflation Reduction Act (IRA) is an all-encompassing climate, healthcare, and tax bill. The Act includes a variety of tax credits that concern Residential HVACR and your customers.  

25D – Residential Energy Efficient Property 

The first of the tax credits is 25D, the Residential Energy Efficient Property. This incentive allows homeowners to claim a tax credit for qualifying ENERGY STAR(R) geothermal heat pumps until 2032.  

The credit is 30% for projects placed in service before January 1, 2033, then reduces to 26% between December 31, 2032, and January 1, 2034. The credit then phases down to 22% for projects placed in service between December 31, 2033, and January 1, 2035.  

25C – Non-business Energy Property Credit 

The 25C Non-Business Energy Property Credit is an incentive that allows homeowners to claim up to 30% of eligible expenses or up to $600 per appliance and $1,200 per year (up to 10% and $500 lifetime) and up to $2,000/year for heat pumps. 

ACCA continues to lobby on behalf of our members to make the 25C tax credit permanent and more robust. First, we are pushing for an elimination of the lifetime cap in favor of an annual cap, so homeowners can take advantage of the credit more than just once. We are also calling for the credit to include labor as an eligible expense, because, as we all know, the installation process is an exceptionally important aspect of any energy efficiency improvement project. Finally, we seek its permanence. A permanent 25C credit will provide market certainty for contractors, manufacturers, and consumers in making significant, long-term energy efficiency investments. You can take action on making 25C permanent in our action alert. 

ACCA was successful in our lobbying efforts to increase the eligible expense percentage from 10% to 30%, a big win for contractors across the country.  

45L Energy Efficient Home and Multifamily Credit (New Energy Efficient Home Credit)-  

Another incentive is 45L, Extension, Increase, and Modifications of New Energy Efficient Home Credit. This tax credit applies to homes acquired between December 31, 2021, and January 1, 2033.  

Under 45L, single-family and manufactured homes that are eligible to participate in the Energy Star Residential New Construction Program or Manufactured Homes Program can get a $2,500 tax credit. An enhanced credit of $5,000 is available to certified zero-energy ready home program participants.  

There is a $500 credit available for multifamily homes eligible to participate in the Energy Star Multifamily New Construction Program. For zero-energy ready multifamily homes, a $1,000 credit is available. There is also a bonus credit of $5,000 for projects that satisfy prevailing wage requirements. 

Unfortunately, this tax credit also has a prevailing wage requirement attached to it, something ACCA has been lobbying against. Under the prevailing wage requirement, taxpayers are required to verify that all technicians, contractors, and mechanics working on energy efficiency projects are compliant with the Davis-Bacon Act in order to qualify for the credit. Further, the Davis-Bacon Act requires payrolls to be audited and verified by third parties. These requirements needlessly impose verification and compliance costs on both contractors and taxpayers, and disincentive use of the credits, which are–first and foremost–supposed to be a tool to promote energy efficiency. 

High-Efficiency Electric Home Rebate Program 

This rebate program provides income-depending rebates to eligible homeowners. These rebates include: 

  • Up to $8,000 for all-electric Heat Pumps 
  • Up to $4,000 for electrical load service center 
  • Up to $2,500 for electric wiring 
  • Up to $14,000 maximum for all projects 

Funds will be administered through state energy offices and will run through September 30, 2031. 

For more information on the IRA, click here 

natalie.d'apolito@acca.org

Posted In: Action Alerts, Residential, Residential Buildings, Taxes, Top Priorities

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