Energy Efficient Tax Credits and Incentives Pay Back in Big Ways With SIPs

The Architecture, Engineering, and Construction (AEC) industry is being financially motivated by impressive federal tax incentives, both credits and deductions, for commercial and residential construction, to encourage responsible construction of structures that consume less energy.

Buildings account for over 40% of energy consumption and emissions, making it no surprise that the 2023 Inflation Reduction Act (IRA) targets this straightforward approach to reducing energy consumption via the built environment.

Opting for structural insulated panel (SIP) construction not only results in high-performing buildings that are stronger and healthier, but it also opens the door to these lucrative tax incentives.

Types of Tax Credits and Incentives for SIP Structures

Energy-efficient construction has been a common practice for many experts in the field for decades, thanks to SIPs.

With the added bonus of lucrative tax incentives, sustainable building choices can leave a lasting legacy while also reducing the project budget and energy resource consumption. And the best part? It's not new, expensive, or difficult to achieve.

SIPs may help you qualify for the following tax incentives:

1. Residential: 45L Energy Efficient Single Family business tax credit available to the builder or building owner (not acquiring homeowner)

2. Commercial: 179D Energy-Efficient Commercial Buildings tax deduction available to commercial building owner, leaseholder, or eligible building designers

3. Multifamily: A combination of residential and commercial incentives for structures four stories and greater

Read on for a breakdown of each and to learn the efficiency opportunities you can achieve when building with SIPs.

Note: The following is a guide only and should be verified by a tax professional.

Residential 45L Federal Tax Credit Overview

The Energy Efficient Home Credit update from the 2023 IRA offers updated tax credit options for the following project types:

• Single family homes (custom or spec tract homes)

• Additional dwelling units and detached additional dwelling units (ADU or DADU)

• Multifamily apartments and condominiums less than four stories

• Senior housing, assisted living facilities, and student housing (see Multifamily section for details) 
  
  

The 45L Tax Credit Breakdown

What type of incentive is it?
45L is a business tax credit per dwelling unit, not a personal tax credit.

Who is eligible?
This tax credit is available to a single “eligible contractor,” which could be a building owner, builder (with intent to sell/lease), etc. Eligibility is designated by ownership at the time of construction.

Note: It is not available to the acquiring homeowner, even in the case of home construction. See IRS instructions for specifics.

How much is the credit?
$500 to $5,000 per dwelling unit is available to the builder or building owner. The credit amount is based on the dwelling unit's energy efficiency being either EnergyStar Certified or a higher efficiency, such as the Zero Energy Ready Home (ZERH) program standard.

See the table below to calculate credit for your project.

What are the energy efficiency requirements?
EnergyStar Certification and ZERH have clear criteria for the efficiency and systems required. Building to these standards and then documenting the energy efficiency qualification is commonly done through typical energy modeling and/or post-construction blower door tests.

View all the ways to document a building’s energy efficiency and qualify for this credit from the IRS by verifying efficiency compliance with DOE-approved 45L software.

Note: Affordable housing projects may now have opportunities to claim both the residential 45L tax credit and the Low-Income Housing Tax Credit (LIHTC).

* Learn more about SIPs & EnergyStar from the Structural Insulated Panel Association.

Commercial 179D Federal Tax Deduction Overview

The Energy-Efficient Commercial Buildings Tax Deduction — Consolidated Appropriation Act (CAA) and IRA — offers new construction commercial building projects of all types and sizes significant advantages to design and construct with energy efficiency in mind.

The 179D Commercial Tax Deduction Breakdown

What are the energy efficiency requirements?
Projects must exceed the ASHRAE 90.1 standard (“Energy Standard for Buildings Except Low Rise Residential Buildings”) in effect four years prior to service date by a minimum of 25% and up to 50% energy improvement.

How much are the tax deductions?
This tax deduction is $.50 to $5.00 per square foot. The amount per square foot is based on whether or not Prevailing Wage and Apprenticeship requirements are met under Section 45(b)(6)(B)(ii). See the table below to calculate.

Who is eligible?
Those eligible include commercial building owners and leaseholders, owners of residential buildings with more than four stories, and building designers of energy-efficient systems eligible for the 179D deduction, as allocated by the building owner.

See IRS Notice 2008-40 for specifics.

Can this deduction be taken for multiple years?
Additional improvements and deductions can be claimed every three or four years. Through December 31, 2032, commercial buildings can claim 179D every three years for commercial or every four years for government, tribal government, and non-profit buildings.

The deduction claimed is based on the same table and percentage of energy efficiency improvement over the ASHRAE 90.1 standard from four years prior.

Multifamily Federal Tax Incentive Overview

The combination of these two credits and deductions for multifamily projects is simply enormous. The builder/owner can take the residential business per unit tax credit (45L) and the commercial per square foot incentive for the owner, leaseholder, or eligible designers.

This package is designed to help meet the needs of a massive housing shortage (and affordability crisis) as well as improve energy efficiency in our buildings. Not to mention, lower energy costs further contribute to lower housing costs for renters/occupants.

It’s truly a win for so many seeking to build and live in more affordable, environmentally responsible spaces … with significant extra tax perks along the way!

The Breakdown for Multifamily Projects

There are now opportunities to combine 179D and 45L for qualifying projects. Beginning in 2023, the 45L program removed a three-story or less height restriction. It’s now open to any size development, including residential rental units with greater than four stories.

Additionally, affordable housing units may have the opportunity to combine LIHTC.

Don’t Stop at Federal Energy Tax Credits

The federal incentives for new construction are available to the entire country, but the incentives don’t stop there.

Each state and many county, city, and utility districts offer additional energy-saving rebates and incentives for choosing energy-efficient thermal envelopes like those created with Premier SIPS. A little legwork can earn your project thousands of rebates and incentives.

Check with your regional districts or search for energy incentives at the Database of State Incentives for Renewables and Efficiency. And always remember to consult a tax professional to verify details for your specific projects.

Save With SIPs Tax Credits and Incentives

When you design and build with SIPs, you’re choosing the easiest and most efficient path to tax incentives. Be sure to take advantage of designing and building your projects with a superior-performing thermal envelope.  

As always, Premier SIPS representatives are ready and available to help you switch to SIPs and take advantage of these generous energy efficiency tax incentives while delivering a superior structure you can be proud of.

Contact a Premier SIPS representative in your area today.