Mechanical Insulation Installation Incentive Act of 2025
The Mechanical Insulation Installation Incentive Act of 2025 would create a new 10% tax credit for the labor costs of installing mechanical insulation on existing mechanical systems in the United States. The credit would be included in the general business credit and would apply to labor costs paid or incurred for qualifying insulation work performed after December 31, 2025, with the credit available for tax years ending through December 31, 2028. To qualify, the insulation work must relate to a system that is depreciation-eligible, located in the U.S., installed in a way that meets Reference Standard 90.1, and result in reduced energy loss. The bill also tightens tax treatment by disallowing a deduction for the portion of these costs that is covered by the credit and provides a mechanism to adjust capital accounts if the credit exceeds the deduction. The program is temporary and would sunset after 2028. In short, the bill is an energy-efficiency incentive aimed at encouraging retrofits and installation of mechanical insulation in existing buildings and systems, offsetting part of the labor cost with a 10% credit, while aligning with existing energy-efficiency standards and tax rules.
Key Points
- 1New credit: A 10% labor-cost credit for installing mechanical insulation property, treated as part of the general business credit under section 38 (new Sec. 45BB).
- 2What counts as mechanical insulation labor costs: Labor costs for installing insulation materials, facings, and related accessories on a mechanical system located in the U.S., where the system is depreciation-eligible, and the insulation installation reduces energy loss. The system must have been placed in service at least one year before installation, and the insulation work must meet Reference Standard 90.1.
- 3Sunset and effective date: Applies to amounts paid or incurred after December 31, 2025, for tax years ending after that date, but the credit terminates after December 31, 2028 (i.e., no credits for tax years ending in 2029 or later).
- 4Interaction with other tax rules: The credit is treated as part of the general business credit. Additionally, no deduction is allowed for the portion of the labor costs equal to the credit (per Sec. 280C), and if the credit exceeds regular deductions, the excess reduces the taxpayer’s capitalized basis for those costs.
- 5Compliance and standards: The insulation work must meet energy-efficiency standards (Reference Standard 90.1) and be installed on a U.S.-located, depreciation-eligible mechanical system.