The 2022 Inflation Reduction Act (IRA) and the 2021 Infrastructure Investment and Jobs Act (IIJA) include a variety of provisions for builders and building owners to save money on measures that improve overall energy efficiency of new residential construction, existing homes, and commercial buildings. These programs support energy efficiency of the building envelope that enables electrification and reduces greenhouse gas (GHG) emissions.

Each section below includes a brief overview of the applicable programs and a wealth of resources for using foam plastic insulating sheathing continuous insulation to achieve a variety tax incentives.

 

New Residential Construction

image of newly built home exterior

The IRA amended Internal Revenue Code Section 45L, Tax Credit for Energy Efficient New Homes, to provide taxpayers with a tax credit for eligible new or substantially reconstructed homes that meet applicable ENERGY STAR home program or DOE Zero Energy Ready Home (ZERH) program requirements. The new 45L provisions include two tiers of credits – $2500 or $5000 – with the higher credits for eligible homes and dwelling units certified to applicable ZERH program requirements. The qualified contractor – typically the developer, builder or homeowner – is the only person who can claim the 45L tax credit and must own the unit at the time of construction or improvement. [View IRS Notice 2023-65.]

 

 

 

Energy Star logo

For homes and units acquired on or after January 1, 2023, the base level tax credit will be specifically tied to ENERGY STAR certification for single-family, manufactured, and multifamily homes. This tax credit has been extended through 2032. 

For additional details related to this tax credit, please review IRS guidance for taxpayers. 

FPIS ci Helps Achieve the Following:

ENERGY STAR Version 3.1: The baseline for a compliant building uses R20+5ci (2x6 wall) or R13+10ci (2x4 wall) for Climate Zones 6-8, which is the same as required by the 2012 IECC or 2012 IRC Chapter 11 envelope provisions.

ENERGY STAR Version 3.2: The baseline for a compliant building use R20+5ci (2x6 wall) or R13+10ci (2x4 wall) for Climate Zones 4-8, which is the same as required by the 2021 IECC or 2021 IRC Chapter 11.

Compliance with Energy Star version 3.2 or later version is recommended for improved energy savings, although not required at this time for compliance. Unfortunately, both versions allow the continuous insulation (ci) component to be traded-off by improving the energy efficiency performance of other parts of the building. This can result in walls that are more susceptible to moisture damage in colder climates and subject to problems caused by thermal bridging, which the use of ci helps to prevent.  Whereas, increasing ci R-value in any climate will improve moisture and energy performance along with other benefits. Also, use of FPIS ci as the water resistive barrier system and an exterior air barrier can help meet air leakage requirements as well as eliminate the cost of separate materials to address these requirements for the tax credit. Refer to the resources listing below as well as the “Cost-effective Ways to Use FPIS ci” tab for more information.

Explore these resources for additional information and technical support to optimize your walls to achieve ENERGY STAR compliance and qualify for the $2,500 tax credit:

ZERO Energy Ready Home Logo


“From custom dream homes to affordable housing and everything in between, DOE’s Zero Energy Homes Program and certification requirements are designed to ensure that all Americans have the opportunity to live in a healthier, more efficient, and more resilient home.” 

– Alejandro Moreno, Acting Assistant Secretary for Energy Efficiency & Renewable Energy

According to the U.S. Department of Energy, “a DOE Zero Energy Ready Home is a high-performance home that is so energy efficient that a renewable energy system could offset most or all of the home’s annual energy use.” These homes represent a new level of performance with “rigorous requirements that ensure outstanding levels of energy savings, comfort, health, and durability.” 

DOE’s Zero Energy Ready (ZERH) Program requires ENERGY STAR certification as a prerequisite. The 45L credit is $5,000 for single-family, multifamily, and manufactured homes eligible to participate in their respective EPA's ENERGY STAR Residential New Construction Program, which are certified to applicable ZERH program requirements.

On January 26, 2023, DOE’s Zero Energy Ready Home (ZERH) program in EERE’s Building Technologies Office (BTO) released Version 2 of its national program requirements for single-family homes (ZERH V2). One notable new feature in Version 2 is the emphasis on a highly efficient thermal envelope by aligning insulation levels with the 2021 International Energy Conservation Code and requiring that the total UA of the building envelope be at least equivalent (which is a key distinction from the ENERGY STAR based tax credit requirements). 

Other features of the updated program include making homes tighter to reduce air leakage energy losses, readying for future high efficiency electric technologies, enhancing the indoor air quality benefits, boosting the efficiency threshold for ZERH certification, and expanding the use of PV-Ready features.

Multifamily buildings up to five stories are currently eligible for the tax credit under Version 1, Revision 8. Starting in 2024, multifamily buildings of any height will be eligible under Version 1, Revision 9. DOE is developing ZERH Multifamily Version 2, with a release date of January 1, 2025 (a draft version was released in May 2023).

The ZERH program released Manufactured Homes Version 1 (Pilot) in 2023 to give manufacturers an immediate path to certification and eligibility for the $5,000 tax credit in 2023, while simultaneously allowing time to conduct research and solicit feedback from all interested stakeholders to improve the program.

For additional details related to this tax credit, please review IRS guidance for taxpayers. 

FPIS ci Helps Achieve the Following:  

The ZERH program has a mandatory requirement for the building envelope to meet or exceed the performance for the building envelope required by the 2021 IECC residential provisions. Consequently, the minimum compliant wall assemblies for Climate Zones 4-8 are R20+5ci (2x6 wall) or R13+10ci (2x4 wall). Increasing ci R-value in any climate will improve moisture and energy performance along with other benefits. Also, use of FPIS ci as the water resistive barrier system and an exterior air barrier can help meet air leakage requirements as well as eliminate the cost of separate materials to address these requirements for the tax credit. Refer to the resources listing below as well as the “Cost-effective Ways to Use FPIS ci” tab for more information.

Explore these resources for additional information and technical support to optimize your walls to achieve DOE ZERH program compliance and qualify for the $5,000 tax credit:    

In addition to savings through tax credits, using FPIS ci can save up to several thousand dollars in construction costs due to its multi-functional capabilities to reduce first cost while complying with either Tier outlined above. Consider these resources:

 

Home Improvements

image of remodeled home exterior

The IRA and IIJA allocate more than $25 billion for programs and tax incentives to improve the energy efficiency of, electrify, and reduce greenhouse gas (GHG) emissions from existing homes.

Insulation is a cost-effective, energy-saving measure that increases building comfort while reducing greenhouse gas emissions and contributing to a green environment. According to the Insulation Contractors Association of America (ICAA), there are over 78 million homes that today remain under-insulated, due in large part to past energy codes being less stringent than today’s standards. Now is a great time to consider bringing insulation levels up to current code requirements to increase your home’s comfort and save money on energy bills for years to come.

 

A long-standing federal tax credit for home energy improvements such as insulation, windows, heat pumps, and furnaces, the IRA increases the credit to 30% of cost starting in 2023, with an annual cap of $1,200 and with smaller limits for most items. The credit is taken on tax returns and is mostly restricted to homeowners for their primary residence.

To qualify for the credit:

  • Install insulation materials to the prescriptive insulation requirements of the 2021 International Energy Conservation Code. 
  • Keep proper documentation of the work including the installation contract or receipt.
  • File IRS Form 5695 (2023) along with your Form 1040. (Remember that the credit does not apply to labor/installation costs.)

On August 4, 2023, the U.S. Internal Review Service (IRS) released Notice 2023-59, which specifies requirements for U.S. taxpayers to claim the “Energy Efficient Home Improvement Credit” under section 25C of the U.S. tax code for home energy audits. The Notice builds upon guidance issued in December 2022 by the IRS and Treasury Department in a Fact Sheet (FS-2022-40), which addresses “frequently asked questions about energy efficient home improvements and residential clean energy property credits.”

More details

State energy offices will operate this $4.3 billion Department of Energy (DOE) program to provide rebates for whole-home retrofit packages based on the reduction in home energy use. The program is available for all income levels and includes apartments. This program provides rebates for energy efficiency retrofits ranging from $2,000-$4,000 for individual households and up to $400,000 for multifamily buildings. 

Grants to states to provide rebates for home retrofits include:

  • Up to $2,000 for retrofits reducing energy use by 20% or more, and up to $4,000 for retrofits saving 35% or more.
  • Maximum rebates double for retrofits of low- and moderate-income homes.

More details

This $4.5 billion DOE program also will be administered by state energy offices to provide rebates to low- and moderate-income households to install heat pumps and other efficient electric equipment that does not replace the same kind of equipment. It also includes insulation and air sealing and upgrading electric service and wires. There is an income cap of 150% of AMI. The program includes apartments. 

More details

In operation for more than 40 years, WAP provides grants to cover the cost of home weatherization, typically for families earning less than 200% of the federal poverty level (FPL). In addition to $1.1 billion in funding from DOE and other sources, IIJA included $3.5 billion for WAP to be spent over several years. Funding per house or apartment is typically capped at an average of about $8,000.

More details

 

Commercial Buildings

image of a commercial office building

The IRA and IIJA allocate more than $1 billion for programs and tax incentives to improve the energy efficiency of and reduce greenhouse gas (GHG) emissions from new and existing commercial buildings. 

 

 

 

 

 

 

A long-standing federal tax provision that IRA reworked and made more generous, the 179D tax deduction is now $0.50–5.00 per square foot (/sf) of floor area for owners of new and improved energy-saving commercial buildings, depending on the percentage of energy savings and whether the contractor pays prevailing wages. As of January 1, 2023, the maximum deduction increases to $5/sf, the minimum savings threshold is reduced to 25%, and there is a new
provision for retrofits of existing buildings. 

More details

 

Disclaimer: The information provided here does not constitute professional tax advice or other professional financial guidance. It should not be used as the only source of information when making decisions regarding design, purchasing, investments, or the tax implications of new home construction, or when executing other binding agreements. In the event that there is conflict between information provided on this webpage and guidance or notices published by IRS, the information published by IRS shall take precedence.