Indoor air quality tax credit

Summary#

This bill creates a new federal tax credit to encourage indoor air quality (IAQ) assessments and upgrades for commercial buildings, public buildings, and certain nonprofits. It gives credits per square foot for IAQ assessments, air-cleaning system upgrades, and HVAC upgrades, with much larger credits if installers meet prevailing-wage and apprenticeship rules. The bill also requires the Department of Energy to set up a voluntary certification program for properties that meet the IAQ standards the tax credit depends on.

• Main change: Adds an “indoor air quality credit” that businesses and other eligible entities can claim as part of the general business tax credits.
• Credit amounts: $1 per sq ft for an assessment; $5 per sq ft for an air-cleaning upgrade; $50 per sq ft for an HVAC upgrade. These jump to $25 and $250 per sq ft for the two upgrade types if prevailing-wage and apprenticeship rules are met.
• Eligibility: Applies to commercial property, public property (including federal, state, local), and properties owned by tax-exempt 501(c)(3) organizations.
• Standards: Upgrades must be certified to bring the property into compliance with ASHRAE Standard 62.1-2022 or Standard 241-2023 and favor the Indoor Air Quality Procedure in ASHRAE 62.1-2022 when it is more energy efficient and not more expensive.
• Limits and rules: Credit for upgrades is capped at 50% of the taxpayer’s spending on those upgrades in a year; assessment credits cannot exceed the amount paid for the assessment. The property basis must be reduced by the credit amount, and amounts claimed as credit cannot also be deducted.

What it means for you#

• Commercial property owners / landlords

  • You could get a tax credit for paying for IAQ assessments and for installing or repairing air-cleaning systems and HVAC systems that meet the specified standards.
  • If you claim the credit, you must reduce the tax basis (value for depreciation) of the property by the credit amount, which can lower future depreciation deductions.
  • The upgrade credit covers up to half of the upgrade spending in a tax year.

• Public entities and nonprofits (501(c)(3))

  • Properties you own are eligible. The bill allows credits for work on these properties to be allocated to the person primarily responsible for designing the property (for example, an architect or developer), who would be treated as the taxpayer for the credit under Treasury rules the Secretary issues.

• Designers, developers, or contractors

  • For projects on public or nonprofit-owned property, the credit may be assigned to the designer (if Treasury regulations allow), letting someone other than the property owner claim the tax benefit.
  • Larger credit amounts require meeting prevailing-wage and apprenticeship rules. That may affect how you bid and staff projects.

• Contractors and workers

  • To qualify for the higher credit levels, at least 15% of total labor hours on the upgrade must be done by qualified apprentices (subject to applicable apprentice-to-journeyworker ratios). Prevailing-wage rules also apply.

• Taxpayers generally

  • The indoor air quality credit becomes part of the general business credit system for businesses that pay income tax and meet eligibility rules.
  • The credit starts applying to amounts paid or incurred after December 31, 2026, for tax years ending after that date.

• Federal agencies (DOE, EPA, Treasury/IRS)

  • The Secretary of the Treasury (through regulations) and the Secretary of Energy (with EPA consultation) must set standards and certification rules to implement the credit.
  • DOE must set up a voluntary certification program within 365 days after enactment.

Expenses#

No publicly available information.

• The bill creates a new tax credit, which would reduce federal tax revenue (a fiscal cost), but the bill text does not include an estimate.
• There will likely be administrative costs for Treasury/IRS to write regulations and administer the credit, and for DOE to run the voluntary certification program.
• Businesses may face compliance costs to meet certification, prevailing-wage, and apprenticeship requirements. Meeting prevailing-wage and apprenticeship rules could raise labor costs on some projects.

Proponents' View#

• The bill appears intended to encourage assessments and upgrades that improve indoor air quality in places where people work, learn, or gather.
• Supporters may argue the credit incentivizes building owners to meet modern ASHRAE IAQ standards and to choose energy-efficient ventilation methods when they cost no more than alternatives.
• The larger credit for projects that meet prevailing-wage and apprenticeship conditions could be seen as supporting higher labor standards and job training.
• A voluntary DOE certification program could make it easier for owners and buyers to show their properties comply with the IAQ rules used for the credit.

Opponents' View#

• One concern is that the bill does not include a fiscal estimate, so the total cost to the federal budget is unclear.
• The bill leaves certification standards and many implementation details to future Treasury and DOE regulations; it is unclear how strict or easy-to-use those rules will be in practice.
• Requiring prevailing wages and apprenticeships to get the higher credit could raise project costs, which might reduce the number of projects that proceed or favor larger firms able to meet those rules.
• The rule that the property basis must be reduced by the credit reduces future depreciation deductions, which could offset some of the credit’s benefit.
• It is unclear exactly how to measure the “square feet of property affected” for mixed-use or partial upgrades, and how the 50% cap on upgrade credits will operate across multiple taxpayers or years.