The Inflation Reduction Act: What It Means for Builders

On August 16, 2022, the Inflation Reduction Act was signed into law. The new bill is the largest in U.S. history focused on combating climate change. More than $300 billion will be invested in energy and climate reform through energy tax incentives, investments in clean energy production, and tax credits aimed at reducing carbon emissions.

Beginning January 1, 2023, builders can take advantage of tax incentives for new single family, multifamily, and manufactured homes thanks to the extended and expanded Section 45L, the New Energy Efficient Home Credit. Key changes are outlined below.

What’s Changing with 45L Under the Inflation Reduction Act?  

The credit was extended for 10 years through December 31, 2032
The credit opportunity is higher – now up to $5,000 per dwelling (previously it was $2,000)
All multifamily buildings qualify – no longer restricted to buildings that are 3 stories or less
It does not impact basis for Low Income Housing Tax Credit (LIHTC) – you can use both
Credit Opportunity for Single Family & Manufactured Homes

Tax incentives are tied to two certification programs:  ENERGY STAR® and the Zero Energy Ready Program of the U.S. Department of Energy.  If a new single family or manufactured home passes ENERGY STAR requirements, builders can receive a $2,500 tax credit. Builders can receive a credit of $5,000 per dwelling for meeting Zero Energy Ready Home requirements.

Credit Opportunity for Multifamily Projects

The same credits are available to multifamily projects. Each unit is eligible for a $2,500 or $5,000 tax credit. However, builders must pay prevailing wages to employed laborers and mechanics. If employees are not paid prevailing wage, the credit is lowered to $500 or $1,000 per unit if the project meets ENERGY STAR or Zero Energy Ready Home requirements, respectively.

The Importance of Measuring Infiltration Rates

Both ENERGY STAR and Zero Energy Ready programs have specific climate-zone air infiltration requirements – that is, air that enters the building through leaks in the building envelope. A blower door test measures such leaks in single and multifamily dwellings and must be conducted before and after air sealing. The goal for builders is to design and construct an airtight home that reduces energy usage and keeps homeowners comfortable.

Become an ENERGY STAR & Zero Energy Ready Home Partner

To certify homes under the ENERGY STAR program, builders must sign an ENERGY STAR Partnership Agreement and complete the online Builder Orientation, which can be found at www.energystar.gov/homesPA. Likewise, the first step to becoming a Zero Energy Ready Home partner is to register. Upon registration, builders are required to take the Zero Energy Ready Home Orientation Webinar.

Henry® Can Help

Henry offers a range of Building Envelope System solutions that can help builders meet the Inflation Reduction Act requirements and access energy tax incentives. For example, self-adhered water and air barriers, like Blueskin^® VP100, can help provide a continuous plane of airtightness and eliminate moisture intrusion to efficiently control air leakage into and out of the building envelope. Tests confirm much lower air changes per hour with Blueskin VP100 than with typical alternate approaches. Lower air changes equate to higher energy efficiency, and energy modeling confirms that energy use for heating and cooling is 23-50% lower with Blueskin VP100.

For 80+ years, our solutions have been helping manage the flow of water, air, and vapor throughout the building envelope. Today, as part of the Carlisle Weatherproofing Technologies (CWT) portfolio of brands, we’re ready to support an integrated building envelope system to improve energy efficiency and help you access credits and deductions offered in the Inflation Reduction Act of 2022.