Energy Efficient Home Improvement Credit

DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[REG-118264-23]</DEPDOC> <RIN>RIN 1545-BR27</RIN> <SUBJECT>Energy Efficient Home Improvement Credit</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking and notice of public hearing. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains proposed regulations regarding the energy efficient home improvement credit as modified by the Inflation Reduction Act of 2022 (IRA). The proposed regulations would affect manufacturers of specified property who want to become qualified manufacturers and eligible taxpayers who place in service certain home improvement property. The proposed regulations would provide rules for manufacturers of specified property to register to be qualified manufacturers and satisfy certain other requirements, and rules for taxpayers to calculate the credit. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Written or electronic comments must be received by December 24, 2024. A public hearing on these proposed regulations is scheduled to be held on January 21, 2025, at 10 a.m. ET. Requests to speak and outlines of topics to be discussed at the public hearing must be received by December 24, 2024. If no outlines are received by December 24, 2024, the public hearing will be cancelled. Requests to attend the public hearing must be received by 5 p.m. ET on January 17, 2025. The public hearing will be made accessible to people with disabilities. Requests for special assistance during the hearing must be received by January 16, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at <E T="03">https://www.regulations.gov</E> (indicate IRS and REG-118264-23) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comments submitted to the IRS's public docket. Send paper submissions to: CC:PA:01:PR (REG-118264-23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning the proposed regulations, contact the Office of Associate Chief Counsel (Passthroughs & Special Industries) at (202) 317-6853 (not a toll-free number). Concerning submissions of comments and requests for a public hearing, contact the Publications and Regulations Section of the Office of Associate Chief Counsel (Procedure and Administration) by email at <E T="03">publichearings@irs.gov</E> (preferred) or by telephone at (202) 317-6901 (not a toll-free number). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Authority</HD> This notice of proposed rulemaking contains proposed amendments to the Income Tax Regulations (26 CFR part 1) that would implement section 25C of the Internal Revenue Code (Code), as amended by section 13301 of Public Law 117-169, 136 Stat. 1818, 1941 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA). The proposed additions are issued by the Secretary of the Treasury or her delegate (Secretary) under the authority granted under sections 25C(b)(6)(B) and (h)(3), and 7805(a) of the Code (proposed regulations). Section 25C(b)(6)(B) provides a specific delegation of authority related to the substantiation requirement for home energy audits: “No credit shall be allowed under this section by reason of subsection (a)(3) unless the taxpayer includes with the taxpayer's return of tax such information or documentation as the Secretary may require.” Section 25C(h)(3), as applicable to property placed in service after December 31, 2024, provides specific delegations of authority to the Secretary related to the product identification number requirement that must be satisfied by qualified manufacturers, including the authority to enter into an agreement with a manufacturer that provides “that such manufacturer will . . . assign a product identification number to each item of specified property produced by such manufacturer utilizing a methodology that will ensure that such number (including any alphanumeric) is unique to each such item (by utilizing numbers or letters which are unique to such manufacturer or by such other method as the Secretary may provide), . . . label such item with such number in such manner as the Secretary may provide, and . . . make periodic written reports to the Secretary (at such times and in such manner as the Secretary may provide) of the product identification numbers so assigned and including such information as the Secretary may require with respect to the item of specified property to which such number was so assigned.” Finally, section 7805(a) authorizes the Secretary to prescribe all needful rules and regulations for the enforcement of the Code. <HD SOURCE="HD1">Background</HD> <HD SOURCE="HD1">I. IRA Amendments to Section 25C</HD> Congress originally enacted section 25C of the Code in section 1333(a) of the Energy Policy Act of 2005, Public Law 109-58, 119 Stat. 594, 1026 (August 8, 2005), to provide a “nonbusiness energy property credit” for the purchase and installation of certain energy efficient improvements in a taxpayer's principal residence. Congress has amended section 25C several times, most recently by section 13301 of the IRA, which renamed this provision the “energy efficient home improvement credit.” Former section 25C expired with respect to any property placed in service after December 31, 2021. Section 13301(i) of the IRA provides that except as otherwise provided in section 13301(i)(2) and (3), the IRA amendments to section 25C apply to property placed in service after December 31, 2022. Section 13301(i)(2) of the IRA provides that the amendments made by section 13301(a) of the IRA apply to property placed in service after December 31, 2021. Section 13301(a) of the IRA extended the credit allowed under section 25C with respect to any property placed in service through December 31, 2032. Section 13301(i)(3) of the IRA provides that the amendments made by section 13301(g) of the IRA apply to property placed in service after December 31, 2024. Section 13301(g) of the IRA amended section 25C by redesignating former subsection (h) as subsection (i) and inserting a new subsection (h) (described in part I.C. of this Background). Section 25C, as amended by section 13301(b) and (f) of the IRA, allows an individual taxpayer (taxpayer) a credit for the taxable year (section 25C credit) equal to 30 percent of the total amount paid or incurred by the taxpayer during such taxable year for qualified energy efficiency improvements installed during such taxable year, residential energy property expenditures, and home energy audits. <HD SOURCE="HD2">A. Credit Amount and Limitations</HD> As amended by section 13301(c) of the IRA, the amount of the section 25C credit generally is limited under section 25C(b)(1) to $1,200 with respect to any taxpayer for any taxable year. Within this $1,200 limitation, section 25C(b) sets forth further annual limitations for certain categories of improvements. Section 25C(b)(2) provides that the credit allowed under section 25C(a)(2) is limited to $600 with respect to any taxpayer for any taxable year with respect to any item of qualified energy property. Section 25C(b)(3) provides that the credit allowed under section 25C(a)(1) with respect to any taxpayer for any taxable year is limited to $600 in the aggregate with respect to all exterior windows and skylights. Section 25C(b)(4) provides that the credit allowed under section 25C(a)(1) with respect to any taxpayer for any taxable year is limited to $250 in the case of any exterior door and $500 in the aggregate with respect to all exterior doors. Section 25C(b)(6) limits the credit allowed under section 25C(a)(3) for a home energy audit to $150. Additionally, notwithstanding the general $1,200 annual limitation (and its internal limitations), section 25C(b)(5) provides that the credit allowed under section 25C(a)(2) with respect to any taxpayer for any taxable year is limited to $2,000 in the aggregate with respect to amounts paid or incurred for an electric or natural gas heat pump water heater described in section 25C(d)(2)(A)(i), an electric or natural gas heat pump described in section 25C(d)(2)(A)(ii), and a biomass stove or boiler described in section 25C(d)(2)(B). Therefore, a taxpayer could claim a total section 25C credit of $3,200, if the taxpayer has sufficient expenditures in categories of property (or a home energy audit) subject to the $1,200 limitation and in categories of property subject to the $2,000 limitation. <HD SOURCE="HD2">B. Overview of Qualified Energy Efficiency Improvements and Residential Energy Property Expenditures</HD> Section 25C(c)(1) provides that the term “qualified energy efficiency improvements” means any “energy efficient building envelope component” if such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer's principal residence (within the meaning of section 121 of the Code), the original use of such component commences with the taxpayer, and such component reasonably can be expected to remain in use for at least 5 years. Section 25C(c)(2) provides that the term “energy efficient building envelope component” means a building envelope component that meets certain energy efficiency requirements. Section 25C(c)(3) provides that the term “building envelope component” means any insulation material or system, including ai ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 135k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━