By: Luke Rogers, Armacell Technical Applications Manager-Insulation
The Inflation Reduction Act was signed into law on August 16, 2022. While you may be aware that the act benefits homeowners making their homes more energy efficient, there is an entire section dedicated to commercial building owners. In fact, commercial building owners that make their buildings more energy efficient can qualify for a tax deduction up to a maximum of $1 for every square foot, and Armacell products can help.
The Energy Efficient Commercial Buildings Deduction section (Sec. 13303) of the Inflation Reduction Act rewards commercial building owners who improve energy efficiency of their buildings by at least 25%. Building owners who want to obtain this deduction must have an energy efficiency savings plan that is designed by a licensed architect, engineer, or other qualified professional, and energy savings can come from lighting systems, HVAC and hot water systems, and the building insulation envelope. The deduction is $0.50 per sq ft by demonstrating a 25% savings, and $0.02 per sq ft for every 1% over 25%, up to a maximum $1 per sq ft.
One of the easiest and most cost effective energy efficiency improvements is to add insulation to mechanical systems. For insulation and HVAC systems the most recent version of ASHRAE 90.1 should be followed and a great place to start is to ensure that the insulation being used meets standards and is at the correct thickness. Armacell’s insulation solutions can contribute to qualifying energy efficient improvements like bringing insulation up to code, replacing old or damaged insulation, or even investing in a more efficient upgraded HVAC system.
In addition to ensuring insulation is up to code, a building owner should also consider replacing older, inefficient insulation. Even insulation materials with a vapor retarder can absorb and retain moisture over time, and since water is highly conductive, that means a loss in performance over time. For every 1% increase in moisture, the insulation becomes 7.5% more conductive (less insulating). Ice-laden insulation is even more conductive than wet insulation because ice is nearly 4 times more conductive than water. In a paper published by the National Insulation Association, the engineering team looked at the economics of replacing an ice-laden refrigeration pipe and found that the energy savings came to about 3,150 MM Btu per year.
For a more significant investment to achieve an even greater energy savings, a building owner may consider upgrading to a more efficient HVAC system. Conventional ducted HVAC systems pushing air throughout the system use a lot of energy and see a lot of losses. One alternative is a Direct Expansion (DX) system. DX uses refrigerant as a medium, which has better thermal properties, takes up less space, needs less maintenance, and allows for certain areas of the building to be cooled without cooling the entire building. Another alternative is a Variable Refrigerant Flow (VRF) system. A VRF system can service a wider area while consuming less energy. It also has a more powerful compressor, allows for customizable controls in different zones, adjusts flow to meet the demand of each zone , and can maintain a set temperature at each individual zone. Regardless of the system, HVAC equipment and piping must be properly insulated.
Claiming the Energy Efficient Commercial Buildings Deduction is dependent on a plan made by a professional. We recommend consulting a licensed Architect or MEP engineer to see how your commercial building can qualify. If you need to be referred to an Architect or MEP engineer, or if you know of any Architects or MEP engineers that would like more information on Armacell products or recommendations, please contact us.
This informational blog was not prepared by tax professionals and should not be relied on for tax advice. Refer to the law text for further details.