FORM 8908: Instructions Regarding Prevailing Wages

The IRS Form 8908 (also referred to as the Energy Efficient Home Credit) states that “eligible contractors can claim a credit for each qualified energy-efficient home sold or leased to another person during the tax year for use as a residence.”

This tax credit is a fiscal incentive designed to encourage residential construction practices contributing to energy conservation, environmental sustainability, and energy savings.

Prevailing Wages

The Inflation Reduction Act of 2022 introduced specific provisions related to prevailing wages that impact various tax credits and incentives, particularly those associated with energy-efficient projects. Under this act, a taxpayer must ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility is located.

Filing Requirements for Form 8908

Form 8908 is included with the builder’s or contractor’s tax return for the year in which the qualifying homes are sold. This form is essential for reporting the number of eligible homes and calculating the total credit amount. Multi-family projects must comply with the prevailing wage requirements to receive the increased credit amount of $2,500 or $5,000 per unit; otherwise, they may only qualify for $500 or $1,000 per unit.

Additional information must be attached to your timely filed return (including extensions) to substantiate that you meet the prevailing wage requirements and to claim the increased credit amount for each home. A separate attachment must be included for each home with the following information:

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Impact Of The Inflation Reduction Act On EPACT Section 179 Tax Deduction

In August of 2022, The Inflation Reduction Act was signed into law which made significant changes to the Energy Policy Act (EPAct) Section 179D tax deduction. The benefits and expansion of eligibility for energy-efficient commercial buildings were now enhanced, opening the door for companies who made energy-efficient upgrades to their commercial buildings.

Increased Deductions for Prevailing Wage and Apprenticeship Requirements
  • The original deduction of $1.88/sqft has increased to $2.50 – $5.00/sqft for buildings that meet the prevailing wage and apprenticeship requirements.
  • The deduction reduces to $0.50 – $1.00/sqft for 25% – 50% energy savings if the prevailing wage and apprenticeship requirements are unmet.
  • Projects with a construction start date prior to 1/29/2023, are eligible for the $2.50 – $5.00/sqft deduction without meeting the prevailing wage and apprenticeship requirements.
Broader Eligibility
    • If the energy-efficient property is owned by a federal, state, or local government, or a non-profit, the property owner may allocate the §179D deduction to the primary designer of the building.

For the first time. designer allocation is now open to all tax-exempt entities including Indian Tribal Governments, private colleges, and universities.

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Navigating The Energy Star Certification Process For Homes

ENERGY STAR certified homes are not only energy efficient, but they also offer better comfort and play a crucial role in reducing carbon emissions. Achieving this certification can unlock various financing options, like the 45L Tax Deduction, making Tax Credit a highly beneficial pursuit for homeowners.

However, understanding and successfully navigating the Energy Star Certification process is pivotal. Here, we illuminate the steps involved in achieving the Energy Star certification, emphasizing the flexibility it offers in adopting a custom combination of measures tailored to each home.

Step 1: Determining the ENERGY STAR ERI Target

The journey begins with the determination of the ENERGY STAR ERI (Energy Rating Index) Target for your home. This is achieved by collaborating with an EPA-recognized Home Certification Organization (HCO) and utilizing their Approved Software Rating Tool.

The ERI Target is the benchmark that your home needs to meet or exceed to earn the coveted Energy Star Certification. It’s a numerical representation of energy efficiency, where a lower score signifies superior efficiency.

Step 2: Modeling Efficiency Measures

 

Upon establishing the ERI Target, the next phase involves modeling the preferred set of efficiency measures for your home. These can encompass a variety of elements, ranging from insulation and HVAC systems to energy-efficient windows and appliances.

The objective here is to confirm, through meticulous energy modeling, that the chosen efficiency measures enable your home to meet or surpass the ENERGY STAR ERI Target.

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