House Democrats Seek Overhaul of Energy Tax Incentives

Filed in Advocacy, Tax Reform by on September 20, 2021 0 Comments

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The House is moving forward with its $2 trillion tax plan, which includes significant changes to energy tax incentives used for residential construction and remodeling. Many of these proposed changes are positive, but some would diminish the utility of these credits moving forward.

  • Section 45L New Energy Efficient Home Credit. This credit, which expires at the end of the year, would be extended through the end of 2031. However, starting in 2022, the credit would take on a completely different form.  NAHB opposes these changes, and we detailed our concerns in this letter to the House Ways and Means Committee.

Since its inception, qualifying for Section 45L was based on meeting a specific energy savings goal above a baseline energy code (currently the 2006 IECC). Starting in 2022, the bill proposes to base eligibility on participating in the Energy Star Residential New Construction Program. The credit amount would increase from $2,000 to $2,500 for qualifying homes. It would also create a higher-tier credit of $5,000 for eligible single-family homes certified as zero-energy ready under the Department of Energy Zero Energy Ready Home Program.

For multifamily projects, starting in 2022, eligibility would be based on participating in the Energy Star Multifamily New Construction Program. The credit would be reduced from its current $2,000 per qualifying unit to $500. However, projects that pay prevailing wages are eligible for a higher credit amount of $2,500 per unit. In addition, multifamily units certified as zero-energy ready under the Department of Energy Zero Energy Ready Home Program are eligible for a $1,000 credit per unit, or $5,000 per unit under Davis-Bacon prevailing wage requirements.

  • Section 25C Non-business Energy Property Credit. This credit, which expires at the end of year, would be extended through 2031. It provides financial incentives for consumers to install qualifying energy efficient products in their home, such as doors, windows, HVACs, etc. These changes are largely positive, including increasing the credit from 10% to 30% and replacing the lifetime cap with a $1,200 annual limit. The bill would update various standards and limits, remove eligibility of roofs and advanced main air circulating fans, and expand the credit to include home energy audits.
  • Section 25D Residential Energy Efficient Property. This credit is being phased out, but the bill would slow down the phase out and extend the credit through the end of 2033. The credit helps cover the cost for installing solar electric, solar water heating, fuel cells, small wind, biomass fuel stoves and geothermal heat pumps. Originally a 30% credit, it has been lowered to 26% for 2022 and phases out after 2023. The bill would restore the credit back to 30% for eligible expenditures from 2022 through 2031, phasing down to 26% in 2032, and 22% in 2033, before expiring. The bill also would make battery storage technology eligible.
  • Section 179D Energy Efficient Commercial Buildings Deduction. This deduction is a permanent feature of the tax code designed to incentivize energy efficient commercial buildings, including residential buildings built under the commercial codes. Qualifying for this deduction is challenging, and the bill makes several changes to make qualifying easier. These temporary improvements would begin for 2022 through 2031. Specifically, the bill would increase the deduction amount; adjust the energy percentage threshold; remove the lifetime limit; and offer an alternative approach for retrofit projects. The bill would also provide a bonus deduction for projects that comply with prevailing wage requirements and also use registered apprenticeships.

These provisions reflect only a small portion of the $2 trillion tax bill being assembled in the House. As the bill moves forward in the coming weeks, significant changes are likely — including shrinking the scope of the overall bill — and there are no guarantees that any of these energy tax provisions are included in a final agreement.

NAHB supports incentivizing energy efficiency through the tax code but will continue to advocate for revisions to changes we oppose, particularly as it relates to Section 45L.

 

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