Energy Efficient Home Improvement Credit, 85099-85117 [2024-24110]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 89, Number 207 (Friday, October 25, 2024)]
[Proposed Rules]
[Pages 85099-85117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-24110]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-118264-23]
RIN 1545-BR27


Energy Efficient Home Improvement Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: 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.

DATES: 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.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at https://www.regulations.gov (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cannot be edited or withdrawn.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.

FOR FURTHER INFORMATION CONTACT: 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 
[email protected] (preferred) or by telephone at (202) 317-6901 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Authority

    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

[[Page 85100]]

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.

Background

I. IRA Amendments to Section 25C

    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.

A. Credit Amount and Limitations

    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.

B. Overview of Qualified Energy Efficiency Improvements and Residential 
Energy Property Expenditures

    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 air 
sealing material or system, which is specifically and primarily 
designed to reduce the heat loss or gain of a dwelling unit when 
installed in or on such dwelling unit, exterior windows (including 
skylights), and exterior doors.
    Section 25C(d)(1) provides that the term ``residential energy 
property expenditures'' means expenditures made by the taxpayer for 
``qualified energy property'' that is installed on or in connection 
with a dwelling unit located in the United States and used as a 
residence by the taxpayer, and that is originally placed in service by 
the taxpayer. Section 25C(d)(1) also provides that residential energy 
property expenditures include expenditures for labor costs properly 
allocable to the onsite preparation, assembly, or original installation 
of the property. Section 25C(d)(2) provides that the term ``qualified 
energy property'' means several categories of property that satisfy 
certain energy efficiency standards and other requirements.

[[Page 85101]]

C. Qualified Product Identification Number; Qualified Manufacturers; 
Specified Property

    Section 25C(h) provides that no section 25C credit is allowed with 
respect to any item of specified property (as further described in part 
II.D. of this Background) that is placed in service after December 31, 
2024, unless the item of specified property is produced by a 
``qualified manufacturer'' (QM) and the taxpayer includes the 
``qualified product identification number'' (PIN) of the item of 
specified property on the tax return for the taxable year (PIN 
requirements). Section 25C(h)(2) provides that the term ``qualified 
product identification number'' means, with respect to any item of 
specified property, the product identification number assigned to such 
item by the QM pursuant to the methodology referred to in section 
25C(h)(3).
    Section 25C(h)(3) provides that the term ``qualified manufacturer'' 
means any manufacturer of specified property that enters into an 
agreement with the Secretary that provides that such manufacturer will: 
(1) assign a product identification number to each item of specified 
property produced by such manufacturer, using a methodology that will 
ensure that such number (including any alphanumeric) is unique to each 
such item, by using numbers or letters unique to such manufacturer or 
by such other method as the Secretary may provide (PIN assignment 
requirement); (2) label such item with such product identification 
number in such manner as the Secretary may provide (PIN labeling 
requirement); and (3) 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 items of 
specified property to which such product identification numbers were so 
assigned (periodic written report requirement). The PIN assignment 
requirement, the PIN labeling requirement, and the periodic written 
report requirement are collectively referred to as the ``QM PIN 
requirements'' in this preamble.
    The proposed regulations aim to provide certainty to manufacturers 
that want to become QMs and taxpayers who want to claim the section 25C 
credit, to provide flexibility to manufacturers complying with the QM 
PIN requirements and taxpayers including PINs on their tax returns, and 
to facilitate effective administrability of these requirements by the 
IRS.

D. Specified Property

    Section 25C(h)(4) provides that the term ``specified property'' 
means any qualified energy property and any property described in 
section 25C(c)(3)(B) (exterior windows, including skylights) or (C) 
(exterior doors).
    Section 25C(d)(2) provides that the term ``qualified energy 
property'' means any of the following:
    (A) Any of the following that meet or exceed the highest efficiency 
tier (not including any advanced tier) established by the Consortium 
for Energy Efficiency that is in effect as of the beginning of the 
calendar year in which the property is placed in service: (i) an 
electric or natural gas heat pump water heater, (ii) an electric or 
natural gas heat pump, (iii) a central air conditioner, (iv) a natural 
gas, propane, or oil water heater, and (v) a natural gas, propane, or 
oil furnace or hot water boiler.
    (B) A biomass stove or boiler that (i) uses the burning of biomass 
fuel to heat a dwelling unit located in the United States and used as a 
residence by the taxpayer, or to heat water for use in such a dwelling 
unit, and (ii) has a thermal efficiency rating of at least 75 percent 
(measured by the higher heating value of the fuel).
    (C) Any oil furnace or hot water boiler that (i) is placed in 
service after December 31, 2022, and before January 1, 2027, and (I) 
meets or exceeds 2021 Energy Star certified efficiency criteria, and 
(II) is rated by the manufacturer for use with fuel blends at least 20 
percent of the volume of which consists of an eligible fuel (defined in 
section 25C(d)(3)) (eligible fuel), or (ii) is placed in service after 
December 31, 2026, and (I) achieves an annual fuel utilization 
efficiency rate of not less than 90, and (II) is rated by the 
manufacturer for use with fuel blends at least 50 percent of the volume 
of which consists of an eligible fuel.
    (D) Any improvement to, or replacement of, a panelboard, sub-
panelboard, branch circuits, or feeders that (i) is installed in a 
manner consistent with the National Electric Code, (ii) has a load 
capacity of not less than 200 amps, (iii) is installed in conjunction 
with (I) any qualified energy efficiency improvements, or (II) any 
qualified energy property described in section 25C(d)(2)(A) through (C) 
for which a credit is allowed under section 25C for expenditures with 
respect to such property, and (iv) enables the installation and use of 
any qualified energy efficiency improvements or any qualified energy 
property described in section 25C(d)(2)(A) through (C) for which a 
credit is allowed under section 25C for expenditures with respect to 
such property.

II. Prior Guidance and Requests for Comments

A. Notice 2022-48

    On October 24, 2022, the Treasury Department and the IRS published 
Notice 2022-48, 2022-43 I.R.B. 316, which included requests for 
comments on the amendments to section 25C by section 13301 of the IRA. 
Specific to section 25C(h), Notice 2022-48 requested comments on what 
the Treasury Department and the IRS should consider (1) in determining 
the manner of agreements between the IRS and a QM, (2) in developing a 
methodology to ensure that each PIN is unique to each item of specified 
property, (3) in prescribing the manner by which specified property 
must be labeled with a unique PIN, and (4) in developing the 
requirements for QM periodic written reports.

B. Notice 2023-59

    On August 21, 2023, the Treasury Department and the IRS published 
Notice 2023-59, 2023-34 I.R.B. 564, which provided, in part, 
requirements related to home energy audits under section 25C(a)(3) 
intended to be included in forthcoming proposed regulations. Section 1 
of Notice 2023-59 provided that until the issuance of the forthcoming 
proposed regulations, taxpayers may rely on the rules described in 
sections 3 through 6 of Notice 2023-59. As discussed further in part II 
of the Explanation of Provisions section of this preamble, taxpayers 
may continue to rely on the rules described in section 3 through 6 of 
Notice 2023-59 after the issuance of the proposed regulations to 
satisfy the substantiation requirement of section 25C(b)(6)(B).

C. Notice 2024-13

    On January 9, 2024, the Treasury Department and the IRS published 
Notice 2024-13, 2024-05 I.R.B. 618. Notice 2024-13 discussed comments 
related to the PIN requirements received in response to Notice 2022-48.
    Some commenters to Notice 2022-48 suggested using existing 
numbering systems to satisfy the QM PIN requirements. For example, 
commenters suggested that manufacturers could use existing product 
serial numbers to satisfy the PIN assignment requirement. Manufacturers 
routinely assign serial numbers to specific items, which purportedly 
achieves the specificity suggested by the statutory text. However, as 
Notice 2024-13 explained,

[[Page 85102]]

the systems that manufacturers employ to assign serial numbers are 
insufficient for the QM PIN requirements because they are not uniform 
by product or manufacturer in length, format, or in other respects. 
These differences would create processing challenges for the IRS and 
could cause confusion for consumers claiming the section 25C credit. 
Additionally, some manufacturers change their serial numbers for 
products over time.
    Some commenters to Notice 2022-48 suggested that manufacturers 
could employ stock-keeping unit numbers (SKUs) to satisfy the QM PIN 
requirements. However, as Notice 2024-13 explained, SKUs generally 
reflect the product line of a merchant or manufacturer but are not 
specific to the unique items of property themselves. Accordingly, 
serial numbers and SKUs would not constitute satisfactory PINs for the 
QM PIN requirements.
    Similarly, certain categories of products, such as exterior 
windows, skylights, and exterior doors currently do not have unique 
serial numbers for each such product manufactured but instead are 
assigned numbers that identify multiple windows, skylights, or doors as 
belonging to a specific product line of such items.
    Other commenters to Notice 2022-48 suggested using product line 
numbers or universal product codes (UPCs) to satisfy the QM PIN 
requirements. Regarding product line numbers, some commenters pointed 
to the National Fenestration Rating Council's (NFRC) Certified Product 
Directory for exterior windows, doors, and skylights. However, as 
explained in Notice 2024-13, because the NFRC system assigns the same 
number to multiple (or all) items in a specific product line, these 
numbers would not provide the specificity needed to satisfy the QM PIN 
requirements. Similarly, UPCs are a multi-character code assigned to 
products by manufacturers. Manufacturers and others employ UPCs for 
tracking and selling inventory. Like the NFRC numbers, however, UPCs 
generally are assigned per product type, and not per specific item. 
While UPCs can vary based on product differences, they too would not 
provide the specificity required by the statute. In addition, because 
many products would bear the same UPC or NFRC number, these numbering 
conventions would not satisfy the purposes of section 25C(h), which 
aims to prevent duplicate or fraudulent claims for the section 25C 
credit for the same item of specified property.
    Notice 2024-13 outlined a proposed PIN system that would require 
manufacturers to register with the IRS as QMs and to assign 17-digit 
PINs (made up of four parts, discussed further in part IV.B. of the 
Explanation of Provisions of this preamble) to specified property. 
Under Notice 2024-13, QMs also would be required to label their 
products with a unique individual PIN, furnish the PINs (directly or 
indirectly) to consumers to report on their tax returns when claiming a 
section 25C credit, and file with the IRS periodic lists of PINs 
assigned by the QM.
    Finally, Notice 2024-13 requested comments on several questions to 
help inform the development of rules governing the QM PIN requirements. 
Notice 2024-13 asked manufacturers to detail the different items of 
specified property that they produce and whether they maintain a 
universal system for assigning unique identification numbers to items 
of property. The notice also requested comments on a proposed PIN 
assignment system.
    All comments to Notice 2024-13 have been considered in developing 
the proposed regulations.

III. Revenue Procedure 2024-31

    The proposed regulations would provide general guidance on the 
section 25C credit, including what property qualifies for the section 
25C credit and what limitations apply. The proposed regulations would 
also provide a safe harbor for certain property that is installed in 
conjunction with, and enables the installation and use of, other 
property (see the discussion of enabling property and enabled property 
in part I.A. of the Explanation of Provisions section of this 
preamble).
    In addition to the proposed regulations, the Treasury Department 
and the IRS are issuing Revenue Procedure 2024-31, which provides the 
procedures that manufacturers must follow to become QMs and 
requirements to comply with the QM PIN requirements. See part IV of the 
Explanation of Provisions section of this preamble for further 
discussion of Revenue Procedure 2024-31.

Explanation of Provisions

I. Overview

    Proposed Sec.  1.25C-1(a) would provide an overview of the proposed 
regulations. Proposed Sec.  1.25C-1(b) would provide definitions that 
apply for purposes of section 25C and the proposed regulations. While 
most of the definitions would mirror those in the statute, proposed 
Sec.  1.25C-1(b) also would provide definitions of additional key 
terms. These terms are described in this section.

A. Enabling and Enabled Property

    Proposed Sec.  1.25C-1(b)(5) and (6) would introduce and define the 
terms ``enabled property'' and ``enabling property,'' which are derived 
from section 25C(d)(2)(D)(iv). Qualified energy property under section 
25C(d)(2)(D) includes any improvement to, or replacement of, a 
panelboard, sub-panelboard, branch circuits, or feeders, that, among 
other requirements, is installed in conjunction with any qualified 
energy efficiency improvements or any other type of qualified energy 
property for which a section 25C credit is allowed, and enables the 
installation and use of such property. To simplify these rules, the 
proposed regulations would refer to such improvement to, or replacement 
of, a panelboard, sub-panelboard, branch circuits, or feeders under 
section 25C(d)(2)(D) as ``enabling property,'' and the property the 
enabling property is installed in conjunction with as ``enabled 
property.''

B. Energy Star and International Energy Conservation Code Standard

    Section 25C(c)(2)(A), (B), and (d)(2)(C)(i)(I) refer to ``Energy 
Star,'' and section 25C(c)(2)(C) refers to the ``International Energy 
Conservation Code standard.'' Under section 25C(c)(2)(A), exterior 
windows and skylights are not qualified energy efficiency improvements 
unless they meet Energy Star certified most efficient certification 
requirements. Under section 25C(c)(2)(B), exterior doors are not 
qualified energy efficiency improvements unless they meet applicable 
Energy Star certified requirements. Under section 25C(d)(2)(C)(i)(I), 
oil furnaces and hot water boilers are not qualified energy property 
unless they meet or exceed 2021 Energy Star certified efficiency 
criteria. Under section 25C(c)(2)(C), building envelope components 
other than exterior windows, skylights, and exterior doors are not 
qualified energy efficiency improvements unless they meet the 
prescriptive criteria for such components established by the most 
recent International Energy Conservation Code standard in effect as of 
the beginning of the calendar year that is 2 years prior to the 
calendar year in which such component is placed in service.
    Proposed Sec.  1.25C-1(b)(8) and (11) would define Energy Star and 
the International Energy Conservation Code standard. Energy Star is a 
labeling and rating program administered by the U.S. Environmental 
Protection Agency (EPA) that helps consumers identify energy-

[[Page 85103]]

efficient property. Taxpayers can find out more about Energy Star, 
including the specific climate zones, at https://www.energystar.gov.
    The term ``International Energy Conservation Code standard'' as 
used in section 25C(c)(2)(C) refers to the version of the International 
Energy Conservation Code in effect for a particular year. The 
International Energy Conservation Code is a building code established 
by the International Code Council that sets minimum conservation 
requirements for new buildings. The version in effect as of the 
beginning of the calendar year 2 years prior to the 2023 calendar year 
(i.e., the first year to which the IRA amendments to section 25C apply) 
would be the 2021 version. The 2021 and later versions of the 
International Energy Conservation Code can be found at https://iccsafe.org (select ``Codes'' at the top of the home page). Subsequent 
versions of the International Energy Conservation Code will take effect 
two years after their publication and following a positive 
determination from the U.S. Secretary of Energy, which can be found at 
https://www.energycodes.gov/determinations.

C. Biomass Stove or Boiler; Higher Heating Value of the Fuel

    Section 25C(d)(2)(B) provides that qualified energy property 
includes a biomass stove or boiler that (i) uses the burning of biomass 
fuel to heat a dwelling unit located in the United States and used as a 
residence by the taxpayer, or to heat water for use in such a dwelling 
unit, and (ii) has a thermal efficiency rating of at least 75 percent 
(measured by the higher heating value of the fuel). Proposed Sec.  
1.25C-1(b)(17) would describe a biomass stove or boiler under the 
definition of qualified energy property exactly as provided in section 
25C(d)(2)(B), but with the addition of ``as determined by the U.S. 
Environmental Protection Agency for wood stoves.'' This addition would 
explain how a taxpayer must determine the thermal efficiency rating 
under section 25C(d)(2)(B)(ii). The EPA maintains an online database 
that provides information regarding the thermal efficiency of wood 
stoves. Adopting this source as a means of determining the thermal 
efficiency rating of biomass stoves or boilers would provide uniformity 
and simplicity for such measurements.

D. Placed in Service, Originally Placed in Service and Original Use

    Section 25C includes the terms ``placed in service,'' ``originally 
placed in service,'' and ``original use.''
    Under section 25C(c)(2)(C), building envelope components other than 
exterior windows, skylights, and exterior doors are not qualified 
energy efficiency improvements unless they meet the prescriptive 
criteria for such components established by the most recent 
International Energy Conservation Code standard in effect as of the 
beginning of the calendar year that is 2 years prior to the calendar 
year in which such components are placed in service. Whether certain 
types of property are qualified energy property under section 
25C(d)(2)(A) and (C) depends in part on when such property is placed in 
service. The PIN requirements under section 25C(h) apply to specified 
property placed in service after December 31, 2024. More broadly, the 
IRA extended the section 25C credit with respect to any property placed 
in service through December 31, 2032.
    Under section 25C(d)(1)(B), residential energy property 
expenditures must be for qualified energy property originally placed in 
service by the taxpayer. Under section 25C(c)(1)(B), the original use 
of any energy efficient building envelope component must commence with 
the taxpayer.
    In considering the definition of the term ``placed in service'' 
under section 25C, two sets of rules were considered. First, Sec.  
1.167(a)-10(b) generally provides that the period for depreciation of 
an asset begins when the asset is placed in service and ends when the 
asset is retired from service. Section 1.167(a)-11 provides general 
depreciation rules based on class lives and asset depreciation ranges 
for property placed in service after December 31, 1970. Many of the 
depreciation rules in Sec.  1.167(a)-11 apply when the property is 
``first placed in service.'' Section 1.167(a)-11(e)(1) defines the term 
``first placed in service,'' in part, as the time the property is 
``first placed in a condition or state of readiness and availability 
for a specifically assigned function,'' including in a personal 
activity. Section 1.167(a)-11(e)(1) provides that the provisions of 
Sec.  1.46-3(d)(1)(ii) and (2), relating to the investment credit, 
generally apply for the purpose of determining the date on which 
property is ``placed in service.'' Section 1.46-3(d)(1)(ii) and (2) 
provides, in part, that property is considered placed in service in the 
taxable year in which the property is placed in a condition or state of 
readiness and availability for a specifically assigned function, 
including in a personal activity.
    Second, recently published regulations under section 25E (relating 
to previously-owned clean vehicles) and section 30D (relating to new 
clean vehicles) define ``placed in service'' as the date the taxpayer 
takes possession of the vehicle. See Sec. Sec.  1.25E-1(b)(10) and 
1.30D-2(b)(36). This possession-based standard is not appropriate for 
the definition of placed in service for purposes of the section 25C 
credit. Defining ``placed in service'' as the date the taxpayer takes 
possession of qualified energy efficiency improvements or qualified 
energy property (together, section 25C property) is contrary to the 
intent of section 25C, because the energy efficiency of a dwelling unit 
cannot be improved until the section 25C property is installed. 
Accordingly, proposed Sec.  1.25C-1(b)(15) would adopt the definition 
of placed in service in Sec.  1.46-3(d)(1)(ii) as the date on which the 
section 25C property is placed in a condition or state of readiness and 
availability for its specifically assigned function.
    The determination of whether property is in a condition or state of 
readiness and availability for its specifically designed function is 
factual and has been the subject of many administrative rulings and 
court cases concerning other Code sections. Because installing section 
25C property usually will result in the property being ready and 
available for its specifically assigned function, it is anticipated 
that installation and placed in service will be synonymous in most 
cases. Nonetheless, comments are requested on potential circumstances 
under which installation of section 25C property may be insufficient to 
consider it placed in service.
    Regarding the requirement that qualified energy property be 
``originally placed in service'' by the taxpayer for purposes of 
residential energy property expenditures under section 25C(d)(1)(B), 
Sec.  1.167(a)-11(e)(1) clarifies that the term ``first placed in 
service'' refers to the time the property is first placed in service by 
the taxpayer, not to the first time the property is placed in service. 
In contrast, section 25C uses the terms ``originally placed in 
service'' and ``original use.'' Section 25C property can only be 
``originally'' placed in service, or ``originally'' used, once; thus, 
such property must be new. Accordingly, proposed Sec.  1.25C-1(b)(13) 
would define ``originally placed in service'' to refer to the first 
time property is placed in service, whether or not by the taxpayer, and 
``original use'' to refer to the first use to which the property is put 
or will be put, whether or not that use

[[Page 85104]]

corresponds or will correspond to the use of property by the taxpayer.
    The definitions of the terms ``originally placed in service'' and 
``original use'' in the proposed regulations are intended to require 
that section 25C property be new and not used. These definitions would 
provide simplicity and clarity for taxpayers and manufacturers.
    The Treasury Department and the IRS request comments on the 
definitions in the proposed regulations.

II. General Rules

    Proposed Sec.  1.25C-2 would provide general rules regarding the 
section 25C credit, including how to calculate the credit, what 
limitations apply, and the effect of certain cross-referenced Code 
sections on the credit.
    Proposed Sec.  1.25C-2(a) would provide the general rule that, 
subject to certain limitations and rules, section 25C allows a taxpayer 
a credit for the taxable year 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.
    Proposed Sec.  1.25C-2(b) would provide limitations on the amount 
of the section 25C credit. Consistent with section 25C(b)(1), proposed 
Sec.  1.25C-2(b)(1) would provide that the section 25C credit generally 
is limited to $1,200 with respect to any taxpayer for any taxable year. 
Consistent with section 25C(b)(2), (3), and (4), the proposed 
regulations would provide additional annual limits for certain 
categories of property within this $1,200 limit. Proposed Sec.  1.25C-
2(b)(2)(i) would provide 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. 
Proposed Sec.  1.25C-2(b)(3) and (4) would provide 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 doors and skylights, $250 in the case of any exterior door, 
and $500 in the aggregate with respect to all exterior doors. 
Consistent with section 25C(b)(6), proposed Sec.  1.25C-2(b)(5) would 
provide that the credit allowed under section 25C(a)(3) for a home 
energy audit is limited to $150. Concerning the substantiation 
requirement of section 25C(b)(6)(B), taxpayers may continue to rely on 
the rules described in section 3 through 6 of Notice 2023-59.
    Consistent with section 25C(b)(5), and notwithstanding the general 
$1,200 annual limitation (and its internal, lower limitations), 
proposed Sec.  1.25C-2(b)(2)(ii) would provide 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).
    Proposed Sec.  1.25C-2(c) would provide examples that illustrate 
the operations of proposed Sec.  1.25C-2(a) and (b).
    Proposed Sec.  1.25C-2(d) would provide rules consistent with 
section 25C(f)(1), which provides that rules similar to the rules in 
section 25D(e)(4) through (8) apply for purposes of section 25C. 
Proposed Sec.  1.25C-2(d) would provide that, consistent with sections 
25C(f)(1) and 25D(e)(8)(A), a taxpayer's expenditure for an item of 
property would be treated as made when the original installation of the 
item is completed.
    Proposed Sec.  1.25C-2(e)(1) would provide rules consistent with 
sections 25C(f)(1) and 25D(e)(8) regarding expenditures made in 
connection with the reconstruction of or an addition to a dwelling 
unit. In general, such expenditures would be treated as paid or 
incurred when the taxpayer's use of the reconstructed or post-addition 
dwelling unit begins. These rules also would require taxpayers to 
maintain records that itemize the amount paid or incurred for each item 
of section 25C property in connection with the reconstruction or 
addition.
    Proposed Sec.  1.25C-2(e)(1) would not allow expenditures made in 
connection with the original construction of a dwelling unit to be 
eligible for the section 25C credit. Section 25C allows a credit for 
improving a dwelling unit by adding section 25C property to it or 
preparing a home energy audit with respect to the dwelling unit. The 
dwelling unit must be owned and used by the taxpayer as the principal 
residence under section 25C(a)(1), owned or used by the taxpayer as the 
principal residence under section 25C(a)(3), or used by the taxpayer as 
a residence under section 25C(a)(2). Section 25C property must be 
installed in or on a dwelling unit under section 25C(c)(1)(A) or 
installed on or in connection with a dwelling unit under section 
25C(d)(1)(A). Section 25C property must be originally placed in service 
under section 25C(d)(1)(B) or originally used by the taxpayer under 
section 25C(c)(1)(B). The language used in these provisions to refer to 
the dwelling unit supports the Treasury Department and the IRS's view 
that the best reading of section 25C is to allow a credit only for 
improvements to an existing dwelling unit. Section 25C property must be 
installed on or in (or in connection with) the taxpayer's 
``residence,'' and a dwelling unit cannot be a taxpayer's residence 
until the taxpayer resides in it. As the final requirement for section 
25C property, the taxpayer must originally place in service or 
originally use section 25C property; the taxpayer is the person who 
owns or uses the dwelling unit, which in most cases would not be the 
person who originally constructed the dwelling unit. This 
interpretation is consistent with the description of former section 25C 
by the Joint Committee on Taxation in Description Of Energy Tax Changes 
Made By Public Law 117-169, which refers to the section 25C credit 
being available ``for the purchase of qualified energy efficiency 
improvements to existing homes.'' JCX-5-23, 36 (April 17, 2023). This 
interpretation is also consistent with prior guidance provided by the 
IRS. See Notice 2013-70, 2013-47 I.R.B. 528 (``A taxpayer can claim the 
Sec.  25C credit only for qualifying expenditures incurred for an 
existing home or for an addition or renovation to an existing home, and 
not for a newly constructed home''); Notice 2009-53, 2009-25 I.R.B. 
1095, 1097 (``[T]he [section 25C] credit is only available for existing 
homes.''). Comments are requested on the proposed exclusion of 
expenditures made in connection with the original construction of a 
dwelling unit for purposes of the section 25C credit.
    Proposed Sec.  1.25C-2(f) would provide rules governing joint 
occupancy of a dwelling unit, tenant-stockholders in cooperative 
housing, and members of a condominium management association. Section 
25C(f)(2)(A) generally provides that any expenditure otherwise 
qualifying as an expenditure under section 25C will not be treated as 
failing to so qualify merely because such expenditure was made with 
respect to two or more dwelling units. Consistent with sections 
25C(f)(1) and 25D(e)(4), proposed Sec.  1.25C-2(f)(1) would provide 
that, in the case of any dwelling unit that is jointly occupied and 
used during the calendar year as a principal residence by two or more 
taxpayers, the expenditures allocated to any taxpayer for the taxable 
year in which such calendar year ends is the amount paid or incurred by 
such taxpayer for section 25C property with respect to such

[[Page 85105]]

dwelling unit during such calendar year.
    Consistent with sections 25C(f)(1) and 25D(e)(5), proposed Sec.  
1.25C-2(f)(2) would provide that in the case of a taxpayer who is an 
individual tenant-stockholder in a cooperative housing corporation, for 
purposes of the section 25C credit, such taxpayer would be treated as 
having paid or incurred the taxpayer's proportionate share of any 
amounts paid or incurred by such corporation for section 25C property. 
Non-individual tenant-stockholders may not claim the section 25C 
credit. Proposed Sec.  1.25C-2(f)(2) looks to section 216(b)(3) to 
determine each tenant-stockholder's proportionate share, which 
generally would be the proportion which the stock of the cooperative 
housing corporation owned by the tenant-stockholder is of the total 
outstanding stock of the corporation (including any stock held by the 
corporation).
    Consistent with sections 25C(f)(1) and 25D(e)(6), proposed Sec.  
1.25C-2(f)(3) would provide that a taxpayer who is a member of a 
condominium management association with respect to a condominium 
dwelling unit owned by the taxpayer would be treated as having paid or 
incurred the taxpayer's proportionate share of the condominium 
management association's expenditures for section 25C property. 
Proposed Sec.  1.25C-2(f)(3) would provide a reasonableness standard to 
determine each individual's proportionate share. While section 25D uses 
the term ``proportionate share'' for both cooperatives and 
condominiums, the definition of ``proportionate share'' in section 
216(b)(3) that applies to cooperative housing corporations cannot apply 
to condominiums because they do not have shares of stock to determine 
proportionate shares. Sections 25C, 25D, and 528 do not otherwise 
define proportionate share for condominiums.
    The Treasury Department and the IRS recognize that condominiums are 
governed largely by boards of directors (or similar bodies) that are 
subject to State and local laws, and generally operate according to 
organizational documents. Accordingly, proposed Sec.  1.25C-2(f)(3) 
would provide that an individual dwelling unit owner's proportionate 
share of condominium expenses is determined using any reasonable and 
consistent method. The proposed regulations would further require that 
the condominium's governing body must develop reasonable procedures to 
notify individuals of their allocable shares of these expenditures, and 
of the PINs associated with the specified property. The Treasury 
Department and the IRS request comments on the definition of 
proportionate share for condominiums.
    Finally, proposed Sec.  1.25C-2(g) would provide, consistent with 
sections 25C(f)(1) and 25D(e)(7), that if less than 80 percent of the 
use of an item of property is for nonbusiness purposes, only that 
portion of the expenditures with respect to such item that is properly 
allocable to use for nonbusiness purposes can be taken into account for 
purposes of calculating the section 25C credit.

III. Special Rules

    Proposed Sec.  1.25C-3 would provide a special rule regarding 
enabling property and the requirement that it be installed in 
conjunction with, and enable the installation and use of, enabled 
property under section 25C(d)(2)(D)(iii) and (iv). The Treasury 
Department and the IRS understand that there may be circumstances where 
enabling and enabled property cannot be installed in the same taxable 
year. For example, a taxpayer or third-party installer may not know of 
the need for an upgrade to a panelboard at the time that enabled 
property is installed. Alternatively, the installer may not have 
enabling property available when the enabled property is installed (but 
the enabled property is otherwise functional).
    Proposed Sec.  1.25C-3 would provide a general rule and a safe 
harbor. Proposed Sec.  1.25C-3(b)(1) would provide that enabling 
property would be considered to have been installed in conjunction with 
enabled property if it was installed in the same taxable year as the 
enabled property was installed. Proposed Sec.  1.25C-3(b)(2) would 
provide a safe harbor providing that if enabling property and enabled 
property are installed in consecutive taxable years, then the taxpayer 
may treat the enabling property and the enabled property as installed 
in the same taxable year (deemed taxable year), provided that the 
deemed taxable year is the later of the taxable year in which the 
enabling property or the enabled property was installed, regardless of 
which is installed first. The safe harbor would allow flexibility for 
taxpayers while adhering to the statutory requirement that enabling 
property enable the installation and use of, enabled property.
    If a taxpayer chooses not to apply the safe harbor, and the 
taxpayer, for example, installs the enabled property in the first 
taxable year and the enabling property in the second taxable year, then 
the taxpayer might still be eligible for the section 25C credit with 
respect to the enabled property installed in the first taxable year. 
However, the taxpayer would not be eligible for the section 25C credit 
with respect to the enabling property installed in the second taxable 
year because it could not enable the installation and use of the 
enabled property under section 25C(d)(2)(D)(iv) and would not meet the 
general rule of proposed Sec.  1.25C-3(b)(1).
    The safe harbor would impose no burden on taxpayers because no 
additional reporting requirements are required for its use. However, in 
order to be entitled to the section 25C credit, taxpayers who rely on 
the safe harbor must meet all other applicable requirements of section 
25C and the proposed regulations, including the requirement to provide 
PINs for both enabling property and enabled property, as provided in 
section 25C(h), Revenue Procedure 2024-31 (discussed in part IV of this 
Explanation of Provisions), and any other applicable guidance.
    The Treasury Department and the IRS request comments on the safe 
harbor under proposed Sec.  1.25C-3(b)(2).

IV. QMs and PIN Requirements

    Proposed Sec.  1.25C-4 would provide rules regarding the PIN 
requirements under section 25C(h) that apply to specified property 
placed in service after December 31, 2024. Most of the requirements 
pertain to QMs. Under section 25C(h)(1)(B), a taxpayer's sole 
obligation with respect to a PIN is to include the PIN of any item of 
specified property placed in service after December 31, 2024, on the 
taxpayer's tax return for the taxable year (Taxpayer PIN requirement).
    The proposed regulations would refer manufacturers to Revenue 
Procedure 2024-31, for procedures on how to register and apply to 
become a QM and how to comply with the QM PIN requirements. The 
procedures of Revenue Procedure 2024-31 were derived in part from 
comments received in response to Notice 2024-13.

A. Manufacturer Registration

    Notice 2024-13 proposed that manufacturers would need to register 
with the IRS to become QMs but did not describe a registration process. 
The Treasury Department and the IRS received no comments about the need 
for manufacturers to register with the IRS or the process for such 
registration.
1. General Rules and Registration Process
    Proposed Sec.  1.25C-4(a) would provide the general rule, pursuant 
to section 25C(h)(1), that no section 25C credit is allowed with 
respect to any item of

[[Page 85106]]

specified property placed in service after December 31, 2024, unless 
such item is produced by a QM and the taxpayer includes the PIN of such 
item on the return of tax for the taxable year. Proposed 1.25C-4(a) 
also would summarize the remaining paragraphs in the section, which 
would provide rules for manufacturers of specified property to meet the 
QM PIN requirements.
    Proposed Sec.  1.25C-4(b)(1) would provide, pursuant to section 
25C(h)(3), that for a manufacturer of specified property to become a 
QM, the manufacturer must, in accordance with Sec.  1.25C-4(b) and 
guidance published in the Internal Revenue Bulletin, register with the 
IRS and enter into an agreement with the IRS, certifying under 
penalties of perjury that the manufacturer will meet the QM PIN 
requirements. Revenue Procedure 2024-31 provides that this registration 
and agreement process is conducted through the IRS Energy Credits 
Online Portal.
    Proposed Sec.  1.25C-4(b)(2) would clarify that only manufacturers 
producing specified property at the time of registration may register 
with the IRS to become QMs. Allowing manufacturers that are not 
producing specified property at the time of registration could create 
confusion for taxpayers and would impose administrative burdens on the 
IRS.
2. Special Registration Rule for 2025
    Multiple commenters to Notice 2024-13 expressed a need for 
additional time for manufacturers to comply with the registration and 
QM PIN requirements effective for property placed in service after 
December 31, 2024. In response to these requests, Revenue Procedure 
2024-31 allows manufacturers of specified property until April 30, 
2025, to submit their QM Registration Application and Agreement (as 
defined in the revenue procedure). Under Revenue Procedure 2024-31, any 
manufacturer that submits its QM Registration Application and Agreement 
by April 30, 2025, will be deemed to have been a QM as of December 31, 
2024, provided such QM Registration Application and Agreement is 
validated by the IRS (as described in the revenue procedure). 
Accordingly, for a manufacturer that meets the requirements of the 
Special Registration Rule for 2025, any specified property produced by 
such manufacturer on or after January 1, 2025, and on or before April 
30, 2025, will be deemed to have been produced by a QM.
3. Rule for Multiple Manufacturers
    One commenter to Notice 2024-13 requested clarification as to which 
manufacturer would bear the responsibility to register with the IRS and 
meet the QM PIN requirements if more than one manufacturer participates 
in the production of the same product that is specified property, or if 
under a private labeling arrangement, one manufacturer labels and sells 
the same product of specified property that was produced by a third 
party. Proposed Sec.  1.25C-4(b)(2) would provide that if there are 
multiple manufacturers in the chain of production of the same product 
of specified property, only one manufacturer may be the QM with respect 
to such product. Proposed Sec.  1.25C-4(b)(2) would require that, 
absent an agreement otherwise, where more than one manufacturer 
participates in the production of the same product that is specified 
property, only the manufacturer whose production results in the product 
becoming specified property must register with the IRS to become a QM 
with respect to such property. Proposed Sec.  1.25C-4(b)(2) would 
provide manufacturers working together to produce the same product of 
specified property the flexibility to negotiate which among them would 
bear responsibility as a QM with respect to such property. Revenue 
Procedure 2024-31 contains procedures corresponding to proposed Sec.  
1.25C-4(b)(2). The Treasury Department and the IRS request comments on 
proposed Sec.  1.25C-4(b)(2) and how the rules should apply to products 
with multiple manufacturers.
4. Special Rules for Manufacturers of Enabling Property and Certain 
Manufacturers of Heat Pumps
    Revenue Procedure 2024-31 provides certain exceptions to the QM PIN 
requirements with respect to enabling property and the indoor units of 
heat pumps. Despite those exceptions, which are discussed later in this 
preamble, a manufacturer of such products (even if it only produces no 
other type of specified property other than one or both of such 
products) must register using the IRS Energy Credits Online Portal and 
enter into an agreement with the IRS to become a QM.
5. Validation and Rejection of QM Registration Application and 
Agreement; Revocation and Suspension of QM Registration Status; 
Administrative Review
    Proposed Sec.  1.25C-4(b)(3) and (4) would provide that the IRS 
will validate and may reject a QM Registration Application and 
Agreement, taking into account a manufacturer's North American Industry 
Classification System (NAICS) code, and may revoke or suspend a QM's 
registration status for failure to comply with the QM PIN requirements. 
Proposed Sec.  1.25C-4(b)(3) and (4) would provide that if the IRS 
rejects a QM Registration Application and Agreement, or revokes or 
suspends a QM's registration status, then the manufacturer will be 
afforded administrative review, but any such rejection, revocation, or 
suspension would not be reviewable by the IRS Independent Office of 
Appeals. Revenue Procedure 2024-31 contains procedures corresponding to 
proposed Sec.  1.25C-4(b)(3) and (4).
6. Voluntary Discontinuance of QM Status
    One commenter to Notice 2024-13 suggested that the guidance provide 
that a manufacturer registered as a QM is not required to remain a QM 
if it determines that compliance with the QM PIN requirements is too 
burdensome or otherwise unsuitable. Similarly, another commenter to 
Notice 2024-13 requested that the regulations permit manufacturers to 
register as QMs at any time of their choosing and to discontinue 
participation in the QM program or the assignment, labeling, or 
reporting of PINs at any time.
    Proposed Sec.  1.25C-4(b)(5) would allow a QM to discontinue its QM 
registration status by following the procedures provided in guidance 
published in the Internal Revenue Bulletin. Revenue Procedure 2024-31 
provides procedures corresponding to proposed Sec.  1.25C-4(b)(5), 
including for the date on which the QM's status is discontinued. A QM 
that discontinues its QM registration status will no longer be included 
on the list of QMs published by the IRS, and the IRS will publicize QMs 
that have discontinued their QM status.

B. PIN Assignment Requirement

    Notice 2024-13 proposed a PIN assignment system that would have 
required QMs to assign to each item of specified property a 17-digit 
PIN consisting of four parts: (1) a unique ``QM Number'' specific to 
the QM, (2) a ``Product Number'' specific to the product line of 
specified property, (3) a number reflecting the year of manufacture, 
and (4) an ``Item number'' unique to each item of specified property.
1. General Rule
    Several commenters generally addressed the proposed PIN assignment 
system from Notice 2024-13. Some commenters expressed concerns that the 
system would be burdensome for

[[Page 85107]]

manufacturers and taxpayers. These commenters asserted that it would be 
difficult and costly for manufacturers to assign PINs and ensure that 
consumers receive the PINs, because in many cases there would be one or 
more intermediaries, such as retailers and contractors, between 
manufacturers and consumers. These commenters also noted that it could 
be burdensome for consumers to determine a product's PIN and then 
retain it to include on their tax returns. According to these 
commenters, the PIN assignment system proposed in Notice 2024-13 would 
increase manufacturers' production costs, and consequently increase the 
cost of specified property, thereby deterring consumers from acquiring 
the energy efficient products that the section 25C credit aims to 
promote.
    Some commenters asserted that the specifics of the PIN assignment 
system proposed in Notice 2024-13 would not be workable. Commenters 
asserted that it would be impractical for manufacturers to adopt this 
system, particularly those that already have in place longstanding and 
varied numbering systems for their product lines and individual items. 
Another commenter recommended that manufacturers of exterior windows 
and doors be exempt from QM PIN requirements because they produce 
larger quantities of such items than manufacturers of other types of 
specified property.
    Several commenters suggested allowing manufacturers to employ 
existing numbering systems, such as serial numbers, NFRC numbers, or 
SKUs. One commenter asserted that using existing serial numbers would 
not lead to significant duplication. This commenter further stated that 
even though window and door manufacturers do not employ serial numbers, 
the assignment rules should still permit manufacturers of other 
specified property to employ existing serial numbers. Another commenter 
suggested that the IRS create a template application on which 
manufacturers could provide details about their existing serial 
numbering systems, so that a product's model number and serial number 
could together constitute its PIN.
    The Treasury Department and the IRS acknowledge that the PIN 
assignment requirement presents certain compliance challenges for 
manufacturers and taxpayers. However, section 25C(h) requires unique 
PINs as an integral safeguard to assure that taxpayers entitled to 
claim the section 25C credit can do so efficiently, without concern 
that such claim will be rejected by the IRS for a duplicative or 
otherwise incorrect PIN. The unique PINs also reduce the risk to the 
fisc by preventing multiple claims for the section 25C credit for the 
same item of specified property.
    In addition, the variety of existing product numbering systems 
warrants a uniform PIN assignment system. A manufacturer's serial 
numbers may be unique to individual items of property it produces, but 
different manufacturers use different forms of serial numbers. While 
manufacturers generally assign the same SKU to all items within a 
product line, the SKU would not be unique to each item within such 
line.
    Proposed Sec.  1.25C-4(c) would require a QM to assign PINs unique 
to each item of specified property it produces, using the PIN 
Assignment System described in guidance published in the Internal 
Revenue Bulletin. Revenue Procedure 2024-31 requires a system similar 
to the one described in Notice 2024-13 in that QMs must assign a 17-
character PIN unique to each item of specified property. In response to 
commenter requests, to reduce complexity and burdens, the 17-character 
PIN in Revenue Procedure 2024-31 consists of three components, not the 
four proposed in Notice 2024-13: (1) a four-character ``QM Code'' that 
is specific to the QM and is assigned by the IRS once the QM's 
registration is validated, (2) a one-character ``Product Code'' that 
represents category of specified property and, if applicable, its 
relevant geographic climate zone, that is published by the IRS, and (3) 
a twelve-digit ``Item Number'' that is assigned by the QM that is 
unique to each item of specified property. For the Item Number, a QM 
may choose any twelve alphanumeric characters (including the common 
digits 0 to 9 and capital letters A to Z, other than I or O, but not 
special characters such as *, &, @, etc.), provided that the result is 
a unique Item Number, and provided that the Item number does not employ 
leading zeroes. A QM may use its own SKUs or serial numbers (or parts 
thereof) in the Item Number, provided that the Item Number is unique to 
each item of specified property. Revenue Procedure 2024-31 encourages 
QMs to employ nonsequential characters.
    A commenter questioned why the letters I and O should not be 
allowed in PINs. The similarity of the letters I and O to the numbers 
one and zero could lead taxpayers to make mistakes when including a PIN 
on their tax returns or cause the IRS's processing systems to misread a 
PIN that a taxpayer submits, and cause the IRS to incorrectly disallow 
(or allow) a credit. Accordingly, Revenue Procedure 2024-31 does not 
allow the use of the letters I and O in PINs.
    The PIN Assignment System set forth in Revenue Procedure 2024-31 
ensures that each unique item of specified property will have a unique 
PIN, and that each PIN will employ the same format and the same number 
of characters. This uniformity is necessary for the IRS to process 
taxpayer claims for the section 25C credit efficiently.
    While the Treasury Department and the IRS appreciate the concerns 
raised by the commenters, exterior windows and exterior doors cannot be 
exempted from the QM PIN requirements because section 25C expressly 
requires PINs to be assigned to exterior windows and exterior doors. 
However, the PIN Assignment System allows for a variety of digits in 
the Item Number such that a large volume of specified property can be 
accommodated.
    One commenter asserted that it would be overly burdensome for 
manufacturers to assign PINs to products that manufacturers intend to 
export. The Treasury Department and the IRS agree that PINs only need 
to be assigned to products placed in service in the United States, 
because the definition of specified property itself includes 
requirements that can only be met in the United States, and because the 
section 25C credit is only allowed with respect to dwelling units 
located in the United States. The definitions of the products that 
comprise specified property (qualified energy property and exterior 
windows and exterior doors) each include requirements that can only be 
met in the United States. Qualified energy property under section 
25C(d)(2)(A) must meet or exceed the highest efficiency tier 
established by the Consortium for Energy Efficiency, the requirements 
for which are based in part on United States climate zones. Qualified 
energy property under section 25C(d)(2)(B) must heat a dwelling unit 
located in the United States. Qualified energy property under section 
25C(d)(2)(C) must be rated for use with fuel blends including eligible 
fuel under section 25C(d)(3), which under section 40 is limited to fuel 
produced and used in the United States and under section 40A excludes, 
in part, fuel produced outside the United States for use outside the 
United States. Qualified energy property under section 25C(d)(2)(D) 
comprises qualified energy efficiency improvements (which must be 
installed in the United States under section 25C(c)(1)(A)) and 
qualified energy property under section 25C(d)(2)(A) through (C), 
described in this paragraph, and must enable the installation and use

[[Page 85108]]

of property installed in the United States under section 
25C(d)(2)(d)(iv). Finally, exterior windows (including skylights) and 
exterior doors, as qualified energy efficiency improvements, must be 
installed in the United States under section 25C(c)(1)(A). Exterior 
windows and skylights also must meet Energy Star most efficient 
certification requirements under section 25C(c)(2)(A), and exterior 
doors must meet applicable Energy Star requirements under section 
25C(c)(2)(B), each of which is based in part on United States climate 
zones. Accordingly, the definition of specified property in proposed 
Sec.  1.25C-2(b)(25) would provide that any property placed in service 
outside of the United States is not specified property.
    Revenue Procedure 2024-31 also contains procedures regarding the 
time for assigning PINs to specified property. For property produced on 
or after January 1, 2026, the QM must assign a 17-digit PIN to the 
specific property while it is in the QM's possession. This timing rule 
will assist QMs in meeting the requirement to timely provide the PIN to 
the taxpayer. For items of specified property produced before January 
1, 2026, the QM may, but is not required to, assign a 17-digit PIN to 
specified property after the property has left the QM's possession, 
provided that the rules regarding the time to provide the PIN are 
satisfied (see the discussion later).
2. Transition Relief for Specified Property Placed in Service During 
the 2025 Calendar Year
    Commenters to Notice 2024-13 expressed concern that manufacturers 
(as well as distributors, contractors, and consumers) could not 
implement the proposed PIN assignment system before the PIN 
requirements take effect on January 1, 2025. They requested that the 
IRS adopt a transition rule that would delay or relax the PIN 
assignment requirement for at least the 2025 calendar year.
    The Treasury Department and the IRS agree that transition relief is 
appropriate. Accordingly, for all specified property placed in service 
in the 2025 calendar year, Revenue Procedure 2024-31 provides that a QM 
can satisfy the PIN assignment requirement by furnishing its four-
character ``QM Code'' to consumers, who can satisfy the Taxpayer PIN 
requirement by including the QM Code on their tax returns. Thus, for 
specified property placed in service during calendar year 2025, 
taxpayers may claim the section 25C credit based on the QM Code in lieu 
of the PIN for such specified property. This transition relief affords 
QMs an additional year to implement the full PIN Assignment System.
3. Special Rules for Enabling Property and Certain Heat Pumps
    Two commenters to Notice 2024-13 asserted that the PIN assignment 
requirement would present unique challenges and burdens to 
manufacturers of enabling property described in section 25C(d)(2)(D), 
such as panelboards. These commenters noted that enabling property is 
eligible for the section 25C credit only if it is installed ``in 
conjunction with'' property that is itself eligible for the credit 
(enabled property, discussed previously). The commenters maintained 
that because, in most cases, taxpayers do not install the enabling 
property in conjunction with enabled property, it would saddle 
manufacturers of enabling properties with a disproportionate cost and 
burden to assign a PIN to each item of enabling property, without 
knowing if this was necessary. The commenters noted that because 
enabling property often costs significantly less than enabled property, 
full compliance with the QM PIN requirements would have a higher cost 
per item relative to other categories of specified property. Commenters 
also noted similar issues for manufacturers of heat pumps, which 
generally have two units--an indoor and an outdoor unit--with little 
likelihood one such unit could qualify for the section 25C credit 
without the other unit being installed.
    The Treasury Department and the IRS agree that relief is 
appropriate to address these two concerns. Accordingly, Revenue 
Procedure 2024-31 addresses these issues. Regarding enabling property, 
section 4.01(5) of Revenue Procedure 2024-31 provides that a QM can 
satisfy the PIN assignment requirement with its QM Code in lieu of its 
PIN, instead of meeting the 17-digit PIN requirements, regardless of 
when the enabling property is placed in service. For taxpayers claiming 
the section 25C credit with respect to enabling property, the IRS will 
accept the QM Code in lieu of the PIN for the enabling property. QMs 
that produce enabling property must meet all other QM PIN requirements, 
including using the 17-digit PIN for enabled property placed in service 
on or after January 1, 2026.
    Regarding heat pumps, section 5.05 of Revenue Procedure 2024-31 
provides that only the outdoor unit of a heat pump must be assigned a 
PIN. A QM that produces heat pumps must meet all other applicable QM 
PIN requirements. For example, if a manufacture only produces indoor 
units of a heat pump, it must still register as a QM.
4. Additional Comments to Notice 2024-13
    Some commenters suggested that a trade association of manufacturers 
of certain categories of specified property could create a product 
directory of specified properties that its members produce. They 
further suggested that the trade association could carry out all of the 
QM PIN requirements (assignment, labeling and reporting) on behalf of 
its members. Nothing in Revenue Procedure 2024-31 prohibits, and 
nothing in the proposed regulations would prohibit, a trade association 
from doing so. However, each manufacturer member must register to be a 
QM, and the PINs must follow all of the requirements provided in 
Revenue Procedure 2024-31.
    One commenter asked how manufacturers should assign PINs to 
products made up of a combination of product lines. The PIN Assignment 
System described in Revenue Procedure 2024-31 does not require QMs to 
reference a product's product line in its PIN. The Product Code 
character in the PIN Assignment System represents the category of 
specified property. The Product Code is assigned by the QM in 
accordance with a list of Product Codes on https://www.irs.gov, on the 
IRS Energy Credits Online Portal, or in future published guidance. A QM 
has discretion to reference one product line, multiple product lines, 
or no product lines in the Item Number of a PIN with respect to a 
product that combines more than one product line.
    Another commenter suggested that the proposed regulations allow 
manufacturers to use the proposed PIN system for products that do not 
qualify for the section 25C credit. According to this commenter, such a 
rule could allow manufacturers to obtain more value from the PIN 
system, which could potentially mitigate their compliance costs arising 
from the QM PIN requirements. Nothing in these proposed regulations or 
Revenue Procedure 2024-31 prohibits a manufacturer from assigning PINs 
using the requirements described in Revenue Procedure 2024-31 to 
products that do not qualify for the section 25C credit, particularly 
because QMs have flexibility in assigning Item Numbers. However, QMs 
should only report to the IRS the PINs for those products that are 
eligible for the section 25C credit. QMs may not advise or otherwise 
suggest to consumers that the PINs for products

[[Page 85109]]

that do not meet the requirements under section 25C render those 
products eligible for the section 25C credit.
    One commenter suggested that manufacturers should have the option 
of using a PIN that is longer than 17 characters to accommodate 
production runs that may exceed this limit. The Treasury Department and 
the IRS have considered the number of possible QMs and the number of 
possible products that are specified property. The system must be 
developed to last for many years. Based on available information, the 
17 digits in the PIN Assignment System should suffice.

C. PIN Labeling Requirement; Time To Make the PIN Available

    Commenters to Notice 2024-13 asked that manufacturers be given 
flexibility in complying with the PIN labeling requirement. Several 
commenters requested that guidance not require QMs to affix PINs 
physically to items of specified property, as this would involve 
significant costs. Another commenter suggested that guidance require 
QMs to ensure that taxpayers can easily locate and report a product's 
PIN. This commenter specifically suggested requiring manufacturers to 
clearly label the PIN as the ``Section 25C Energy Efficient Home 
Improvement Tax Credit PIN.''
    One commenter noted that many biomass appliances already have EPA 
labeling requirements and that it could be difficult to add a PIN to 
such labels. Another commenter pointed out that manufacturers may 
already have produced specified property that will be placed in service 
in 2025, and that it may be too late to affix PINs to these products. 
Finally, a commenter suggested allowing QMs to furnish PINs through 
their websites.
    Having considered these comments, the Treasury Department and the 
IRS propose to allow QMs maximum flexibility in meeting the PIN 
labeling requirement and providing PINs to consumers to ensure that 
taxpayers have the information needed to claim the section 25C credit. 
Proposed Sec.  1.25C-4(d) would direct manufacturers to guidance 
published in the Internal Revenue Bulletin. Revenue Procedure 2024-31 
provides that manufacturers generally may choose the method by which to 
label products. QMs would not be required to affix PINs physically to 
items of specified property, provided that QMs make such PINs available 
to taxpayers within the required time frame. Revenue Procedure 2024-31 
allows QMs to meet the PIN labeling requirement in various ways, such 
as by including PINs on documents inside a product's packaging, or 
furnishing PINs to consumers through QM websites. In accordance with 
the special requirement for enabling property, Revenue Procedure 2024-
31 provides that a QM can meet the PIN labeling requirement for 
enabling property by providing its QM Code to consumers. In accordance 
with the special requirement for heat pumps, Revenue Procedure 2024-31 
provides that QMs are not required to label the indoor unit of a heat 
pump.
    Revenue Procedure 2024-31 also provides flexible procedures 
regarding when a QM must make PINs available to consumers. For 
specified property placed in service on or after January 1, 2025, and 
before January 1, 2026, in order to comply with the PIN labeling 
requirement, a QM must provide its QM Code to taxpayers who purchase 
items of specified property by no later than the date--(i) when the 
taxpayer places the specified property in service, (ii) when the 
taxpayer requests a PIN from the QM, or (iii) when the manufacturer 
becomes a QM, whichever is latest. This is in accord with the 
requirements for registration and PIN assignment for specified property 
placed in service in calendar year 2025. For specified property placed 
in service on or after January 1, 2026, in order to comply with the PIN 
labeling requirement, a QM must make its PINs available to taxpayer no 
later than the date when the taxpayer either places the specified 
property in service, or requests a PIN from the QM, whichever is later. 
For any specified property produced in calendar year 2025 and placed in 
service on or after January 1, 2026, and to which only a QM Code has 
been assigned, the QM must make the full 17-digit PIN available to the 
taxpayer upon request by the taxpayer. Revenue Procedure 2024-31 also 
provides that a QM may not establish prerequisites to a taxpayer 
obtaining a PIN unless such prerequisite is required to verify the 
taxpayer's purchase of the specified property. For example, a QM cannot 
require taxpayers to sign up for promotional emails as a condition of 
obtaining a PIN for specified property they purchase. These PIN 
delivery rules provide flexibility for QMs to determine which method of 
delivery works best for their business while ensuring that taxpayers 
have access to PINs when needed.

D. Periodic Written Report Requirement

    Section 25C(h)(3)(C) provides the Secretary with authority to 
require QMs to provide periodic reporting of PINs assigned to specified 
property and other information that the Secretary may require with 
respect to such property.
1. QM Reports
    Proposed Sec.  1.25C-4(e) would direct QMs to guidance published in 
the Internal Revenue Bulletin regarding the format and timing of the 
periodic written report. Revenue Procedure 2024-31 provides that to 
meet the periodic written report requirement, a QM must submit periodic 
reports (QM Reports) electronically, using a template on the IRS Energy 
Credits Online Portal. Each QM Report must be signed under penalties of 
perjury, and include general information such as the QM's name and 
address, and information about each item of specified property for 
which a PIN was assigned, including such items month and year of 
manufacture.
    For purposes of a QM Report, Revenue Procedure 2024-31 defines the 
year of manufacture as the year in which the property becomes specified 
property for purposes of the section 25C credit. This definition is 
intended for the convenience of QMs and to assist in determining 
whether certain energy efficiency standards imposed by section 25C have 
been met. This definition also comports with the rule for multiple 
manufacturers under proposed Sec.  1.25C-4(b)(2). Nothing in Revenue 
Procedure 2024-31 regarding the year of manufacture applies to Code 
sections other than section 25C. The Treasury Department and the IRS 
request comments on the definition of year of manufacture in Revenue 
Procedure 2024-31.
    In accordance with the transition relief provided for calendar year 
2025, Revenue Procedure 2024-31 provides that for specified property 
placed in service on or after January 1, 2025, and before January 1, 
2026, a QM Report need only include the QM Code provided to taxpayers, 
instead of the full 17-digit PIN.
    In accordance with the special rules for manufacturers of enabling 
property and certain manufacturers of heat pumps, Revenue Procedure 
2024-31 provides that QMs are not required to file QM Reports with 
respect to enabling property or indoor units of heat pumps.
2. Time To File QM Reports
    Notice 2024-13 did not propose a rule for the required frequency of 
QM Reports. A commenter to Notice 2024-13 suggested that guidance 
require QMs to file QM Reports annually. The Treasury Department and 
the IRS recognize that the regular submission of QM Reports could pose 
a potential burden to some QMs, particularly for specified property 
placed in service on or after January 1, 2025, and before January 1, 
2026. However, the Treasury

[[Page 85110]]

Department and the IRS have determined that annual QM Reports would not 
be frequent enough to give the IRS time to address errors and to 
effectively administer the section 25C credit.
    Therefore, Revenue Procedure 2024-31 provides transition relief and 
requires that for items of specified property that leave a QM's control 
and enter the stream of commerce on or after January 1, 2025, and 
before January 1, 2026, only one QM Report is required, and it must be 
submitted by January 15, 2026. For specified property placed in service 
on or after January 1, 2026, Revenue Procedure 2024-31 requires a QM to 
file QM Reports on a quarterly basis, specifically by the fifteenth day 
of the calendar month following the end of the calendar quarter in 
which an item of specified property leaves the QM's control and enters 
the stream of commerce (January 15, April 15, July 15, and October 15). 
A QM may choose to submit QM Reports more frequently than once per 
quarter.
    Revenue Procedure 2024-31 also provides procedures for updating or 
rescinding QM Reports, which must be done through the IRS Energy 
Credits Online Portal as soon as possible after the original 
submission.

E. Lessees of a Dwelling Unit

    A lessee may not claim the section 25C credit for qualified energy 
efficiency improvements, as a lessee uses but does not own a dwelling 
unit. A lessee of a dwelling unit may claim the section 25C credit for 
residential energy property expenditures, provided that the dwelling 
unit is used as a residence by the lessee. A lessee may claim the 
section 25C credit for a home energy audit, provided that the dwelling 
unit is used by the lessee as the lessee's principal residence.

F. Additional Comments Received

    Two commenters to Notice 2024-13 suggested that a public database 
of specified products and their PINs would present privacy concerns. 
One commenter also suggested that the IRS treat manufacturer data and 
PIN information as confidential business information. The Treasury 
Department and the IRS understand these concerns, but want to ensure 
that consumers have some information as they search for products that 
are specified property. A QM Code assigned to a manufacturer by the IRS 
does not constitute confidential business information and its 
publication should not pose any inherent risk to QMs. Nonetheless, the 
IRS will publish a list of QMs, which will provide consumers with 
helpful information in determining which QMs offer products that are 
specified property, but to ensure privacy for QMs, the IRS will not 
publish any QM Codes.
    One commenter suggested that the IRS create an online directory of 
products eligible for the credit. The IRS declines to adopt this 
proposal because the statute already provides guidelines for products 
that qualify for the credit. However, the IRS will publish a list of 
Product Codes that sets forth each category of specified property. Some 
commenters asked whether reporting rules would change due to section 
25C having been amended. Form 5695, Residential Energy Credits, is 
being revised to allow reporting of PINs. When available, the revised 
draft form will be available for comment on https://www.irs.gov/draftforms.

Proposed Applicability Dates

    These regulations are proposed to apply to taxable years ending 
after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL 
REGISTER].
    Taxpayers may rely on the proposed regulations for specified 
property placed in service prior to the date these regulations are 
published as final regulations in the Federal Register, provided the 
taxpayer follows the proposed regulations in their entirety, and in a 
consistent manner.

Statement of Availability for IRS Documents

    For copies of recently issued Revenue Procedures, Revenue Rulings, 
Notices, and other guidance published in the Internal Revenue Bulletin, 
please visit the IRS website at https://www.irs.gov.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
requires that a Federal agency obtain the approval of the Office of 
Management and Budget (OMB) before collecting information from the 
public, whether such collection of information is mandatory, voluntary, 
or required to obtain or retain a benefit. A Federal agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection of information displays 
a valid control number.
    The collections of information in the proposed regulations contain 
reporting, third-party disclosure and recordkeeping requirements that 
are necessary to ensure that specified property meets the requirements 
for the energy efficient home improvement credit under section 25C. 
These collections of information generally would be used by the IRS for 
tax compliance purposes and by taxpayers to ensure the property 
qualifies for the credit.
    The reporting requirements include that manufacturers register with 
the IRS to become QMs (as detailed proposed Sec.  1.25C-4(b)) and 
provide IRS with periodic reports (as detailed in proposed Sec.  1.25C-
4(e)). Additionally, in the event a manufacturer is disqualified, the 
manufacturer will have the opportunity to appeal the IRS determination 
by requesting an administrative review. The third-party disclosure 
requirement includes the requirement that manufacturers provide 
taxpayers with a PIN number that identifies the specified property as 
qualified under section 25C (as detailed in proposed Sec.  1.25C-4(d)). 
The likely respondents are businesses and other for-profit entities. 
The burden for these requirements is as follows:
    Registration:
    Estimated number of respondents: 2,100.
    Estimated frequency of responses: 1.
    Estimated average annual burden per response: 2 hours.
    Estimated total annual reporting burden: 4,200 hours.
    Periodic Reporting:
    Estimated number of respondents: 2,100.
    Estimated frequency of responses: 1.
    Estimated average annual burden per response: 15 minutes (0.25 
hours).
    Estimated total annual reporting burden: 525 hours.
    PIN Labeling:
    Estimated number of respondents: 2,100.
    Estimated frequency of responses: varies*.
    * The IRS anticipates that 1 manufacturer may have multiple 
products that qualify and will be labeled. For calculation purposes, 
the IRS is estimating that 1 manufacturer could have 2,000 products 
that qualify.
    Estimated average annual burden per response: 15 minutes (0.25 
hours).
    Estimated total annual reporting burden: 1,050,000 hours.
    Appeals:
    Estimated number of respondents: 21.

[[Page 85111]]

    Estimated frequency of responses: 1.
    Estimated average annual burden per response: 1 hour.
    Estimated total annual reporting burden: 21 hours.
    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act under OMB 
Control Number 1545-NEW. Commenters are strongly encouraged to submit 
public comments electronically. Written comments and recommendations 
for the proposed information collection should be sent to https://www.reginfo.gov/public/do/PRAMain, with copies to the IRS. Find this 
particular information collection by selecting ``Currently under 
Review--Open for Public Comments,'' and then by using the search 
function. Submit electronic submissions for the proposed information 
collection to the IRS via email at [email protected] (indicate REG-
118264-23 on the Subject line). Comments on the collection of 
information must be received by December 24, 2024. Comments are 
specifically requested concerning: whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the IRS, including whether the information will have practical utility; 
the accuracy of the estimated burden associated with the proposed 
collection of information; how the quality, utility, and clarity of the 
information to be collected may be enhanced; how the burden of 
complying with the proposed collection of information may be minimized, 
including through the application of automated collection techniques or 
other forms of information technology; and estimates of capital or 
start-up costs and costs of operation, maintenance, and purchase of 
services to provide information.

III. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
(RFA), the Secretary hereby certifies that the proposed regulations 
will not have a significant economic impact on a substantial number of 
small entities within the meaning of section 601(6) of the RFA. 
Pursuant to section 7805(f), this notice of proposed rulemaking has 
been submitted to the Chief Counsel for the Office of Advocacy of the 
Small Business Administration for comment on their impact on small 
business.
    The proposed regulations would affect QMs of specified property and 
eligible taxpayers who place such property in service during a taxable 
year. The Treasury Department and the IRS estimate the number of QMs to 
be 2,100. Data are not readily available on the number of small 
entities among the QMs, but it is likely that a substantial number may 
be affected. Although a substantial number of small entities may be 
affected, the economic impact of the rule is not expected to be 
significant. Any burden imposed in the proposed regulations on a 
manufacturer that wants to register as a QM, and any subsequent burden 
of assigning a PIN, labeling the specified property, and making 
periodic written reports to the IRS, would be voluntarily assumed by 
such QM, as manufacturers of specified property are not required to 
register as QMs under section 25C. Section 25C provides an indirect 
financial benefit to manufacturers who choose to register as QMs in the 
form of credits available to eligible taxpayers that subsidize the 
purchase of specified property manufactured by the QMs. The different 
credit amounts allowed under section 25C for different types of 
specified property allow manufacturers considering whether to register 
as QMs to make an informed decision regarding the potential financial 
benefit in doing so. The proposed regulations also provide flexibility 
for QMs in meeting the previously described burdens. Accordingly, the 
Secretary certifies that the proposed regulations will not have a 
significant economic impact on a substantial number of small entities. 
The Treasury Department and the IRS request comments that provide data, 
other evidence, or models that provide insight on this issue.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a State, 
local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2023, that threshold is approximately $198 million. This 
rule does not include any Federal mandate that may result in 
expenditures by State, local, or Tribal governments, or by the private 
sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency (to the 
extent practicable and permitted by law) from promulgating any 
regulation that has federalism implications, unless the agency meets 
the consultation and funding requirements of section 6 of the Executive 
Order, if the rule either imposes substantial, direct compliance costs 
on State and local governments, and is not required by statute, or 
preempts State law. This proposed rule does not have federalism 
implications and does not impose substantial direct compliance costs on 
State and local governments or preempt State law within the meaning of 
the Executive Order.

Comments and Requests for a Public Hearing

    Before the proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ADDRESSES heading. 
The Treasury Department and the IRS request comments on all aspects of 
the proposed regulations, including their economic impact and any 
alternative approaches that should be considered during the rulemaking 
process. In addition, the Treasury Department and the IRS request 
comments on the specific issues noted in the preamble to the proposed 
regulations. Any comments submitted, whether electronically or on 
paper, will be made available at https://www.regulations.gov or upon 
request.
    A public hearing has been scheduled for January 21, 2025, beginning 
at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 
Constitution Avenue NW, Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. Participants may alternatively attend the public 
hearing by telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
want to present oral comments at the hearing must submit an outline of 
the topics to be discussed and the time to be devoted to each topic by 
December 24, 2024. A period of 10 minutes will be allotted to each 
person for making comments. An agenda showing the scheduling of the 
speakers will be prepared after the deadline for receiving outlines has 
passed. Copies of the agenda will be available free of charge at the 
hearing. If no outlines of topics to be discussed at the hearing are 
received by December 24, 2024, the public hearing will be cancelled. If 
the public hearing is cancelled, a notice of cancellation of the

[[Page 85112]]

public hearing will be published in the Federal Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have your name added to 
the building access list. The subject line of the email must contain 
the regulation number REG-118264-23 and the language TESTIFY in Person. 
For example, the subject line may say: Request to TESTIFY in Person at 
Hearing for REG-118264-23.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the hearing. The subject line of the email 
must contain the regulation number REG-118264-23 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-118264-23.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
your name added to the building access list. The subject line of the 
email must contain the regulation number REG-118264-23 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing in Person for REG-118264-23. Requests to attend the 
public hearing must be received by 5 p.m. ET on January 17, 2025.
    Individuals who want to attend the public hearing by telephone 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the hearing. The 
subject line of the email must contain the regulation number REG-
118264-23 and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-118264-23. Requests to attend the public hearing must be received 
by 5 p.m. ET on January 17, 2025.
    Hearings will be made accessible to people with disabilities. To 
request special assistance during a hearing please contact the 
Publications and Regulations Branch of the Office of Associate Chief 
Counsel (Procedure and Administration) by sending an email to 
[email protected] (preferred) or by telephone at (202) 317-6901 
(not a toll-free number) by at least January 16, 2025.

Drafting Information

    The principal author of the proposed regulations is the Office of 
Associate Chief Counsel (Passthroughs & Special Industries). However, 
other personnel from the Treasury Department and the IRS participated 
in the development of the proposed regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order for Sec. Sec.  1.25C-1 through 1.25C-4 to 
read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.25C-1 also issued under 26 U.S.C. 25C(b)(6)(B) and 
(h)(3).
    Section 1.25C-2 also issued under 26 U.S.C. 25C(b)(6)(B), 
(f)(1), and (h)(3).
    Section 1.25C-3 also issued under 26 U.S.C. 25C(h)(3).
    Section 1.25C-4 also issued under 26 U.S.C. 25C(h)(3).
* * * * *
0
Par. 2. Sections 1.25C-0 through 1.25C-4 are added to read as follows:
Sec.
* * * * *
1.25C-0 Table of contents.
1.25C-1 Credit for energy efficient home improvements.
1.25C-2 General rules.
1.25C-3 Special rules.
1.25C-4 Qualified Product Identification Number Requirements for 
Specified Property Placed in Service After December 31, 2024.


Sec.  1.25C-0  Table of contents.

    This section lists the major captions contained in Sec. Sec.  
1.25C-1 through 1.25C-4.

Sec.  1.25C-1 Credit for Energy Efficient Home Improvements.

    (a) In general.
    (b) Definitions.
    (1) Building envelope component.
    (2) Code.
    (3) Consortium for Energy Efficiency (CEE).
    (4) Dwelling unit.
    (5) Enabled property.
    (6) Enabling property.
    (7) Energy efficient building envelope component.
    (8) Energy Star.
    (9) Guidance.
    (10) Home energy audit.
    (11) International Energy Conservation Code standard.
    (12) IRS.
    (13) Originally placed in service; Original use.
    (14) Paid or incurred.
    (15) Placed in service.
    (16) Qualified energy efficiency improvements.
    (17) Qualified energy property.
    (18) Qualified manufacturer.
    (19) Qualified product identification number (PIN).
    (20) Residential energy property expenditures.
    (21) Secretary.
    (22) Section 25C credit.
    (23) Section 25C property.
    (24) Section 25C regulations.
    (25) Specified property.
    (c) Applicability date.

Sec.  1.25C-2 General Rules.

    (a) General rule.
    (b) Limitations.
    (1) General limitation.
    (2) Limitation for qualified energy property.
    (3) Limitation for exterior windows and skylights.
    (4) Limitation for exterior doors.
    (5) Limitation for home energy audits.
    (c) Examples.
    (d) When expenditures are treated as made.
    (e) Expenditures in connection with reconstruction or addition; 
Substantiation.
    (1) In general.
    (2) New construction.
    (3) Substantiation.
    (f) Rules for joint occupancy, tenant-stockholders in 
cooperative housing, and members of a condominium management 
association.
    (1) Joint occupancy.
    (2) Tenant-stockholders in cooperative housing corporations.
    (3) Condominium management association.
    (g) Allocation for nonbusiness purposes in certain cases.
    (h) Applicability date.

Sec.  1.25C-3 Special Rules.

    (a) In general.
    (b) Enabling property; Taxable year of installation.
    (1) In general.
    (2) Safe harbor.
    (3) Example.
    (c) Applicability date.

Sec.  1.25C-4 Qualified Product Identification Number Requirements 
for Specified Property Placed in Service After December 31, 2024.

    (a) In general.
    (b) Qualified manufacturer registration and agreement.
    (1) General rule.
    (2) Manufacturers that can register to become qualified 
manufacturers.
    (3) Validation and administrative review of agreements.
    (4) Revocation and suspension.
    (5) Voluntary discontinuance.
    (c) PIN assignment requirement.
    (d) PIN Labeling requirement; Time to provide PIN to taxpayers.
    (1) In general.
    (2) Time to furnish PINs to taxpayers.
    (e) Periodic written report requirement.
    (1) In general.
    (2) Increased frequency of filing written reports.
    (3) Updating and rescinding written reports.

[[Page 85113]]

    (f) Applicability date.


Sec.  1.25C-1  Credit for energy efficient home improvements.

    (a) In general. With respect to property placed in service after 
December 31, 2022, and subject to the requirements and limitations set 
forth in section 25C of the Internal Revenue Code (Code) as implemented 
by the section 25C regulations (as defined in paragraph (b)(24) of this 
section), section 25C of the Code allows as a credit against the tax 
imposed by chapter 1 of the Code for the taxable year 30 percent of 
certain amounts paid or incurred by an individual taxpayer (taxpayer) 
during such taxable year for qualified energy efficiency improvements 
(as defined in paragraph (b)(16) of this section) installed during such 
taxable year, residential energy property expenditures (as defined in 
paragraph (b)(20) of this section) (together, section 25C property), 
and home energy audits (as defined in paragraph (b)(10) of this 
section). Paragraph (b) of this section provides definitions that apply 
for purposes of the section 25C credit and the section 25C regulations. 
Section 1.25C-2 provides general rules and limitations regarding the 
section 25C credit. Section 1.25C-3 provides special rules regarding 
the section 25C credit. Section 1.25C-4 provides rules regarding the 
qualified product identification number (PIN) requirements under 
section 25C(h) for specified property placed in service after December 
31, 2024, and other requirements that manufacturers must satisfy in 
order for their products to become eligible for the section 25C credit.
    (b) Definitions. The definitions in this paragraph (b) solely apply 
for purposes of section 25C of the Code and the section 25C 
regulations.
    (1) Building envelope component. The term building envelope 
component means:
    (i) Any insulation material or system, including air sealing 
material or system that is specifically and primarily designed to 
reduce the heat loss or gain of a dwelling unit when installed in or on 
such dwelling unit;
    (ii) Exterior windows, including skylights; and
    (iii) Exterior doors.
    (2) Code. The term Code means the Internal Revenue Code.
    (3) Consortium for Energy Efficiency (CEE). The term Consortium for 
Energy Efficiency or CEE refers to the nonprofit consortium, consisting 
primarily of utility efficiency program administrators across the 
United States and Canada, that determines energy performance 
specification Tiers for HVAC and water heating equipment, including the 
geographic region where each specification is applicable.
    (4) Dwelling unit. The term dwelling unit includes:
    (i) A house, apartment, condominium unit owned by a taxpayer who is 
a member of a condominium management association with respect to such 
unit, mobile home, houseboat, or similar property used to provide 
living accommodations in a building or structure, but not structures or 
other property appurtenant to such dwelling unit and not that portion 
of a unit that is used on a transient basis or exclusively as a hotel, 
motel, inn, or similar establishment,
    (ii) A manufactured home that conforms to the Federal Manufactured 
Home Construction and Safety Standards (24 CFR part 3280), and
    (iii) Any property designated as a dwelling unit in guidance.
    (5) Enabled property. The term enabled property means:
    (i) Qualified energy efficiency improvements described in section 
25C(c)(1) through (4), or
    (ii) Qualified energy property described in section 25C(d)(2)(A) 
through (C) for which a section 25C credit is allowed for expenditures 
with respect to such property, and
    (iii) For which an enabling property (as defined in paragraph 
(b)(6) of this section) enables the installation and use.
    (6) Enabling property. The term enabling property means property 
described in section 25C(d)(2)(D) that is any improvement to, or 
replacement of, a panelboard, sub-panelboard, branch circuits, or 
feeders that:
    (i) Is installed in a manner consistent with the National Electric 
Code,
    (ii) Has a load capacity of not less than 200 amps,
    (iii) Is installed in conjunction with any qualified energy 
efficiency improvements described in section 25C(c)(1) through (4), or 
any qualified energy property described in section 25C(d)(2)(A) through 
(C) for which a section 25C credit is allowed for expenditures with 
respect to such property, and
    (iv) Enables the installation and use of any enabled property, as 
defined in paragraph (b)(5) of this section.
    (7) Energy efficient building envelope component. The term energy 
efficient building envelope component means a building envelope 
component, as defined in section 25C(c)(3), that meets:
    (i) In the case of an exterior window or skylight, Energy Star 
certified most efficient certification requirements;
    (ii) In the case of an exterior door, applicable Energy Star 
certified requirements; and
    (iii) In the case of any other building envelope component, the 
prescriptive criteria for such component established by the most recent 
International Energy Conservation Code standard in effect as of the 
beginning of the calendar year (as determined by the U.S. Secretary of 
Energy) that is 2 years prior to the calendar year in which such 
component is placed in service.
    (8) Energy Star. The term Energy Star refers to the voluntary 
labeling and rating program administered by the U.S. Environmental 
Protection Agency that determines the applicable climate zones for 
exterior windows, skylights, and doors.
    (9) Guidance. The term guidance means guidance published in the 
Internal Revenue Bulletin. See Sec.  601.601 of this chapter.
    (10) Home energy audit. The term home energy audit means an 
inspection and written report with respect to a dwelling unit located 
in the United States and owned or used by the taxpayer as the 
taxpayer's principal residence (within the meaning of section 121 of 
the Code) that:
    (i) Identifies the most significant and cost-effective energy 
efficiency improvements with respect to such dwelling unit, including 
an estimate of the energy and cost savings with respect to each such 
improvement, and
    (ii) Is conducted and prepared by a home energy auditor that meets 
the certification or other requirements specified in the section 25C 
regulations or guidance.
    (11) International Energy Conservation Code standard. The term 
International Energy Conservation Code standard refers to the model 
building codes developed by the International Code Council that sets 
minimum conservation requirements for new buildings in the United 
States.
    (12) IRS. The term IRS means the Internal Revenue Service.
    (13) Originally placed in service; Original use. The term 
originally placed in service refers to the first time the property is 
placed in service, whether or not by the taxpayer. The term original 
use refers to the first use to which the property is put or will be 
put, whether or not that use corresponds or will correspond to the use 
of the property by the taxpayer.
    (14) Paid or incurred. The term paid or incurred has the same 
meaning as provided in section 7701(a)(25) of the Code.
    (15) Placed in service. The term placed in service refers to the 
date on

[[Page 85114]]

which property that is eligible for the section 25C credit is placed in 
a condition or state of readiness and availability for its specifically 
assigned function.
    (16) Qualified energy efficiency improvements. The term qualified 
energy efficiency improvements means any energy efficient building 
envelope component, if:
    (i) 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);
    (ii) The original use of such component commences with the 
taxpayer; and
    (iii) Such component reasonably can be expected to remain in use 
for at least 5 years.
    (17) Qualified energy property. The term qualified energy property 
means any of the following:
    (i) Any of the following that meet or exceed the highest efficiency 
tier (not including any advanced tier) established by the Consortium 
for Energy Efficiency (CEE) that is in effect as of the beginning of 
the calendar year in which the property is placed in service:
    (A) An electric or natural gas heat pump water heater;
    (B) An electric or natural gas heat pump;
    (C) A central air conditioner;
    (D) A natural gas, propane, or oil water heater;
    (E) A natural gas, propane, or oil furnace or hot water boiler;
    (ii) A biomass stove or boiler that:
    (A) Uses the burning of biomass fuel to heat a dwelling unit 
located in the United States and used as a residence by the taxpayer, 
or to heat water for use in such a dwelling unit, and
    (B) Has a thermal efficiency rating of at least 75 percent 
(measured by the higher heating value of the fuel, as determined by the 
U.S. Environmental Protection Agency for wood stoves).
    (iii) Any oil furnace or hot water boiler that is placed in service 
after December 31, 2022, and before January 1, 2027, and:
    (A) Meets or exceeds 2021 Energy Star certified efficiency 
criteria, and
    (B) Is rated by the manufacturer for use with fuel blends at least 
20 percent of the volume of which consists of an eligible fuel, as 
defined in section 25C(d)(3).
    (iv) Any oil furnace or hot water boiler that is placed in service 
after December 31, 2026, and:
    (A) Achieves an annual fuel utilization efficiency rate of not less 
than 90, and
    (B) Is rated by the manufacturer for use with fuel blends at least 
50 percent of the volume of which consists of an eligible fuel, as 
defined in section 25C(d)(3).
    (v) Any enabling property.
    (18) Qualified manufacturer. The term qualified manufacturer means 
any manufacturer of specified property that has entered into an 
agreement with the IRS as described in section 25C(h)(3) and Sec.  
1.25C-4.
    (19) Qualified product identification number (PIN). The term 
qualified product identification number or PIN means, with respect to 
any item of specified property, the product identification number 
assigned to such item by the qualified manufacturer pursuant to the 
methodology referred to in section 25C(h)(3) and described in Sec.  
1.25C-4.
    (20) Residential energy property expenditures. The term residential 
energy property expenditures means expenditures, including expenditures 
for labor costs properly allocable to the onsite preparation, assembly, 
or original installation of the property, made by the taxpayer for 
qualified energy property that is:
    (i) Installed on or in connection with a dwelling unit located in 
the United States and used as a residence by the taxpayer; and
    (ii) Originally placed in service by the taxpayer.
    (21) Secretary. The term Secretary means the Secretary of the 
Treasury or her delegate.
    (22) Section 25C credit. The term section 25C credit means the 
credit allowable to a taxpayer for the taxable year under section 
25C(a) and the section 25C regulations.
    (23) Section 25C property. The term section 25C property means 
qualified energy efficiency improvements as defined under section 
25C(c) and residential energy property expenditures as defined under 
section 25C(d).
    (24) Section 25C regulations. The term section 25C regulations 
means Sec. Sec.  1.25C-1 through 1.25C-4.
    (25) Specified property. The term specified property means 
qualified energy property described in section 25C(d)(2) and paragraph 
(b)(17) of this section, and exterior windows (including skylights) and 
exterior doors described in section 25C(c)(3)(B) and (C). Any property 
placed in service outside of the United States is not specified 
property.
    (c) Applicability date. This section applies to taxable years 
ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL 
REGISTER].


Sec.  1.25C-2  General rules.

    (a) General rule. Subject to the limitations in paragraph (b) of 
this section, the rules in paragraphs (d) through (h) of this section, 
and the rules in Sec. Sec.  1.25C-3 and 1.25C-4, with respect to 
property placed in service after December 31, 2022, the section 25C 
credit for the taxable year is an amount equal to 30 percent of the sum 
of:
    (1) The amount paid or incurred by the taxpayer for qualified 
energy efficiency improvements installed during such taxable year;
    (2) The amount of the residential energy property expenditures paid 
or incurred by the taxpayer during such taxable year; and
    (3) The amount paid or incurred by the taxpayer during such taxable 
year for home energy audits.
    (b) Limitations--(1) General limitation. Except as provided in 
paragraph (b)(2)(ii) of this section, the section 25C credit allowed 
with respect to any taxpayer for any taxable year is limited to $1,200.
    (2) Limitation for qualified energy property--(i) In general. 
Except as provided in paragraph (b)(2)(ii) of this section and in 
addition to the other limitations provided in this paragraph (b), 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.
    (ii) Limitation for heat pump water heaters, heat pumps, biomass 
stoves, and biomass boilers. Notwithstanding the general limitation 
described in paragraph (b)(1) of this section and the limitation for 
qualified energy property in paragraph (b)(2)(i) of this section, 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 the following property:
    (A) An electric or natural gas heat pump water heater described in 
section 25C(d)(2)(A)(i);
    (B) An electric or natural gas heat pump described in section 
25C(d)(2)(A)(ii); and
    (C) A biomass stove or boiler described in section 25C(d)(2)(B).
    (3) Limitation for exterior windows and skylights. In addition to 
the general limitation in paragraph (b)(1) of this section and the 
other limitations provided in this paragraph (b), the credit allowed 
under section 25C(a)(1) with respect to any taxpayer for any taxable 
year is limited to $600 in the

[[Page 85115]]

aggregate with respect to all exterior windows and skylights.
    (4) Limitation for exterior doors. In addition to the general 
limitation in paragraph (b)(1) of this section and the other 
limitations provided in this paragraph (b), 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.
    (5) Limitation for home energy audits. In addition to the general 
limitation in paragraph (b)(1) of this section and the other 
limitations provided in this paragraph (b), the credit allowed under 
section 25C(a)(3) for a home energy audit is limited to $150.
    (c) Examples. The following examples demonstrate the rules of 
paragraphs (a) and (b) of this section.
    (1) Example 1. In taxable year 2024, Taxpayer A paid $600 for a 
home energy audit of A's principal residence and purchased three 
exterior windows at a cost of $800 per window. Before applying the 
limitations of this section, the credit amount under section 25C(a)(3) 
for the home energy audit would be $180 ($600 x 0.3), and the credit 
amount under section 25C(a)(1) for the three exterior windows would be 
$720 ($800 x 3 x 0.3). The $180 amount is limited to $150 under 
paragraph (b)(5) of this section. The $720 amount is limited to $600 in 
the aggregate with respect to all exterior windows under paragraph 
(b)(3) of this section. Therefore, the total section 25C credit 
allowable to A, assuming A meets all applicable requirements of section 
25C, is limited to $750 ($150 for the home energy audit + $600 for the 
three exterior windows) for taxable year 2024.
    (2) Example 2. In taxable year 2024, Taxpayer B paid $800 and $900, 
respectively, for two exterior doors, and $2,500 for a natural gas hot 
water boiler. Before applying the limitations of this section, the 
credit amount under section 25C(a)(1) for the two exterior doors would 
be $510 (($800 + $900) x 0.3), and the credit amount under section 
25C(a)(2) for the natural gas hot water boiler would be $750 ($2,500 x 
0.3). The $510 amount is limited to $490 ($240 + $250) under paragraph 
(b)(4) of this section, allows $240 for the $800 door ($800 x 0.3) but 
limits the amount for the $900 door ($900 x 0.3 = $270) to $250. The 
$750 amount is limited to $600 for an item of qualified energy property 
under paragraph (b)(2)(i) of this section. The $2,000 limit under 
paragraph (b)(2)(ii) of this section does not apply to natural gas hot 
water boilers. Therefore, the total section 25C credit allowable to B, 
assuming B meets all applicable requirements of section 25C, is limited 
to $1,090 ($490 for the exterior doors + $600 for the natural gas hot 
water boiler) for taxable year 2024.
    (d) When expenditures are treated as made. Pursuant to sections 
25C(f)(1) and 25D(e)(8)(A), an expenditure for an item of property is 
treated as made when the original installation of the item is 
completed.
    (e) Expenditures in connection with reconstruction or addition; 
Substantiation--(1) In general. Any amount paid or incurred by a 
taxpayer for section 25C property in connection with the reconstruction 
of or an addition to a dwelling unit will be treated as paid or 
incurred when the taxpayer's use of the reconstructed or post-addition 
dwelling unit begins.
    (2) New construction. Any amount paid or incurred by a taxpayer in 
connection with the original construction of a dwelling unit is not an 
expenditure eligible for the section 25C credit.
    (3) Substantiation. Taxpayers must maintain records that itemize 
the amount paid or incurred for each item of section 25C property in 
connection with the reconstruction or addition described paragraph 
(e)(1) of this section. Cost segregation studies may not be used as 
substantiation unless the taxpayer limits the amount claimed as a 
section 25C credit to the amount paid or incurred by the contractor or 
subcontractor for the section 25C property added to the dwelling unit 
as part of such reconstruction or addition.
    (f) Rules for joint occupancy, tenant-stockholders in cooperative 
housing, and members of a condominium management association--(1) Joint 
occupancy. Pursuant to section 25C(f)(1) and section 25D(e)(4), in the 
case of any dwelling unit that is jointly occupied and used during the 
calendar year as a principal residence by two or more taxpayers, the 
expenditures allocated to any taxpayer for the taxable year in which 
such calendar year ends is the amount paid or incurred by such taxpayer 
for section 25C property with respect to such dwelling unit during such 
calendar year.
    (2) Tenant-stockholders in cooperative housing corporations--(i) In 
general. Pursuant to sections 25C(f)(1) and 25D(e)(5), in the case of 
an taxpayer who is an individual tenant-stockholder (as defined in 
section 216 of the Code) in a cooperative housing corporation (as 
defined in section 216), for purposes of the section 25C credit, such 
taxpayer will be treated as having paid or incurred the taxpayer's 
proportionate share (as defined in section 216(b)(3)) of any amounts 
paid or incurred by such corporation for section 25C property. Tenant-
stockholders that are not individuals cannot claim the section 25C 
credit.
    (ii) Example. X, a cooperative housing corporation, has 10 tenant-
stockholders who are all individuals. Each tenant-stockholder owns 1 
share of stock. In taxable year 2024, X pays $2,000 for a new exterior 
door for the building and has no other expenditures eligible for the 
section 25C credit. Pursuant to paragraph (f)(2)(i) of this section, 
each tenant-stockholder will be treated as having paid the tenant-
stockholder's proportionate share of the expenditure for the exterior 
door. Under section 216(b)(3), the proportionate share is the 
proportion that the stock of the cooperative housing corporation owned 
by the tenant-stockholder is to the total outstanding stock of the 
corporation (including any stock held by the corporation). Each tenant-
stockholder will be treated as having paid $200 ($2,000 x (1 share of 
stock per tenant-stockholder/10 total shares of stock)) for the 
exterior door. Assuming all other applicable requirements of section 
25C are met, for taxable year 2024, each tenant-stockholder is entitled 
to a $60 ($200 x 0.3) section 25C credit with respect to the exterior 
door.
    (3) Condominium management association--(i) In general. Pursuant to 
sections 25C(f)(1) and 25D(e)(6), in the case of a taxpayer who is a 
member of a condominium management association with respect to a 
condominium dwelling unit that the taxpayer owns, such taxpayer will be 
treated as having paid or incurred the taxpayer's proportionate share 
of any expenditures of such association for section 25C property. Such 
proportionate share may be determined using any reasonable method 
determined by the condominium management association's governing body. 
Unless otherwise provided in guidance, reasonable methods to determine 
the proportionate share of such association expenditures include, but 
are not limited to, looking to State law to determine the proportionate 
share of association expenditures, determining the proportionate share 
based on the association's organizational documents as they relate to 
each owner's responsibility for association expenditures, and 
determining the proportionate share based on the percentages of total 
square footage of the condominium's common elements for each individual 
owner. The governing body must maintain a consistent method for 
determining the proportionate share of association expenditures, and 
should maintain

[[Page 85116]]

records to document such determinations. The governing body also must 
develop reasonable procedures to notify individuals of their allocable 
share of the association expenditures, and of the PINs of the specified 
property. Nothing in this paragraph negates the individual limitations 
described in this section.
    (ii) Condominium management association. For purposes of this 
paragraph (f)(3), the term condominium management association means an 
organization that meets the requirements of section 528(c)(1) and (2) 
of the Code with respect to a condominium project substantially all of 
the units of which are used as residences.
    (iii) Example. Y, a condominium, has 50 resident owners. In taxable 
year 2024, Y pays $2,000 for a new exterior door for the building and 
has no other expenditures eligible for the section 25C credit. The 
organizational documents for Y include a Declaration that lists each 
resident's percentage interest in common elements based on the 
proportion of square footage of each dwelling unit to the total square 
footage of all dwelling units in the building. The Y Declaration shows 
that Z, an individual dwelling unit owner in Y, has a 10 percent 
interest in the common elements. Pursuant to paragraphs (f)(3)(i) and 
(ii) of this section, the Y Board of Directors can determine that Z's 
proportionate share of the expenditure for the exterior door is $200 
($2,000 x 0.1). Z will be treated as having paid $200 in taxable year 
2024 for the exterior door for purposes of section 25C. Assuming all 
other applicable requirements of section 25C have been met, Z's section 
25C credit for taxable year 2024 with respect to the exterior door will 
be $60 ($200 x 0.3).
    (g) Allocation for nonbusiness purposes in certain cases. Pursuant 
to sections 25C(f)(1) and 25D(e)(7), if less than 80 percent of the use 
of an item of property is for nonbusiness purposes, only that portion 
of the expenditures with respect to such item that is properly 
allocable to use for nonbusiness purposes can be taken into account for 
purposes of calculating the section 25C credit.
    (h) Applicability date. This section applies to taxable years 
ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL 
REGISTER].


Sec.  1.25C-3  Special rules.

    (a) In general. This section provides special rules regarding the 
section 25C credit. Except as otherwise provided in this section, the 
other rules of the section 25C regulations continue to apply.
    (b) Enabling property; Taxable year of installation--(1) In 
general. Except as provided in paragraph (b)(2) of this section, 
enabling property is considered to have been installed in conjunction 
with enabled property if it was installed in the same taxable year as 
the enabled property was installed.
    (2) Safe harbor. If enabling property and enabled property are 
installed in consecutive taxable years, the taxpayer may treat the 
enabling property and enabled property as installed in the same taxable 
year (deemed taxable year), provided that the deemed taxable year is 
the later of the taxable year in which the enabling property was 
installed or the enabled property was installed. Nothing in this 
paragraph (b)(2) negates the requirement to provide a PIN for both the 
enabling and enabled property as required in section 25C(h), Sec.  
1.25C-4(a), or guidance.
    (3) Example. In taxable year 2024, Taxpayer C installs a new 
panelboard in his principal residence, and in taxable year 2025, C 
installs a new electric heat pump water heater in his principal 
residence. If C chooses to apply the safe harbor under paragraph (b)(2) 
of this section, C may treat both the enabling property (panelboard) 
and the enabled property (electric heat pump water heater) to have been 
installed in taxable year 2025, for purposes of the section 25C credit. 
If C chooses not to apply the safe harbor under paragraph (b)(2) of 
this section, then the panelboard is determined to have been installed 
in taxable year 2024, and the electric heat pump water heater is 
determined to have been installed in taxable year 2025, for purposes of 
the section 25C credit. Thus, if C chooses not to apply the safe harbor 
under paragraph (b)(2) of this section, then C cannot claim the section 
25C credit with respect to the panelboard.
    (c) Applicability date. This section applies to taxable years 
ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL 
REGISTER].


Sec.  1.25C-4  Qualified Product Identification Number Requirements for 
Specified Property Placed in Service After December 31, 2024.

    (a) In general. No section 25C credit is allowed with respect to 
any item of specified property placed in service after December 31, 
2024, unless such item is produced by a qualified manufacturer and the 
taxpayer includes the PIN of such item on the taxpayer's tax return for 
the taxable year. Paragraph (b) of this section provides rules for a 
manufacturer of specified property to meet the requirement under 
section 25C(h)(3) of the Code to register with the IRS and enter into 
an agreement with the IRS regarding PINs. Paragraph (c) of this section 
provides rules for a manufacturer of specified property to meet the 
requirement under section 25C(h)(3)(A) to assign a product 
identification number unique to each item of specified property they 
produce (PIN assignment requirement). Paragraph (d) of this section 
provides rules for a manufacturer of specified property to meet the 
requirement under section 25C(h)(3)(B) to label each such item of 
specified property, and rules regarding the timing of providing PINs to 
taxpayers (PIN labeling requirement). Paragraph (e) of this section 
provides rules for a manufacturer of specified property to meet the 
requirement under section 25C(h)(3)(C) to make periodic written reports 
to the IRS of the PINs assigned, including such other information as 
the Secretary may require under the section 25C regulations with 
respect to the items of specified property (periodic written report 
requirement).
    (b) Qualified manufacturer registration and agreement--(1) General 
rule. For a manufacturer of specified property to become a qualified 
manufacturer, the manufacturer must, in accordance with this paragraph 
(b) and guidance, register with and enter into an agreement with the 
IRS (QM Registration Application and Agreement), certifying under 
penalties of perjury that the manufacturer will--
    (i) Assign a PIN unique to each item of specified property produced 
by such manufacturer, using the methodology described in paragraph (c) 
of this section and in guidance;
    (ii) Label each such item of specified property with the unique PIN 
and furnish the PIN to the consumer who purchases such item, in 
accordance with the rules provided in paragraph (d) of this section and 
in guidance;
    (iii) Make periodic written reports to the IRS of the PINs assigned 
and such other information as the Secretary may require with respect to 
such items of specified property, in accordance with the rules provided 
in paragraph (e) of this section and in guidance; and
    (iv) Provide such other information and certifications that the IRS 
may require in guidance, on https://www.irs.gov, or on the electronic 
portal used by a manufacturer to register as a qualified manufacturer 
or to submit periodic written reports.
    (2) Manufacturers that can register to become qualified 
manufacturers--(i) General rule. Only a manufacturer

[[Page 85117]]

producing specified property at the time of registration may register 
with the IRS to become a qualified manufacturer for purposes of section 
25C.
    (ii) Rule for multiple manufacturers. If more than one manufacturer 
participates in the production of the same product that is specified 
property, such manufacturers must follow the rules provided in guidance 
to determine which among them must register with the IRS to become a 
qualified manufacturer with respect to such property.
    (3) Validation and administrative review of agreements. The IRS 
will validate and may reject a QM Registration Application and 
Agreement in accordance with guidance. If the IRS rejects a QM 
Registration Application and Agreement, then the manufacturer may 
request administrative review by the IRS of such rejection, as provided 
in guidance. Any IRS rejection of a QM Registration Application and 
Agreement is not subject to administrative appeal to the IRS 
Independent Office of Appeals.
    (4) Revocation and suspension. The IRS may revoke or suspend a 
manufacturer's qualified manufacturer registration status in the IRS's 
sole discretion if the IRS concludes that the manufacturer is not 
adhering to the terms of its QM Registration Application and Agreement. 
If the IRS revokes or suspends a manufacturer's qualified manufacturer 
registration status, then the manufacturer may request administrative 
review by the IRS of the IRS's determination as provided in guidance. 
Any IRS determination relating to the revocation or suspension of a 
manufacturer's qualified manufacturer registration status is not 
subject to administrative appeal to the IRS Independent Office of 
Appeals.
    (5) Voluntary discontinuance. A qualified manufacturer may 
voluntarily discontinue its qualified manufacturer registration status 
by following the procedures provided in guidance.
    (c) PIN assignment requirement. Except as provided in guidance, for 
a manufacturer of specified property to be a qualified manufacturer, 
the manufacturer must assign a PIN unique to each item of specified 
property it produces, in accordance with paragraph (b)(1)(i) of this 
section and using the PIN Assignment System and other rules set forth 
in guidance.
    (d) PIN Labeling requirement; Time to provide PIN to taxpayers--(1) 
In general. For a manufacturer of specified property to be a qualified 
manufacturer, the manufacturer must label each item of specified 
property it produces with a PIN unique to such item, in accordance with 
the requirements and rules set forth in guidance. Third-party labeling 
systems are not allowed, unless allowed by guidance.
    (2) Time to furnish PINs to taxpayers. Qualified manufacturers must 
furnish PINs to taxpayers within the time frames set forth in guidance.
    (e) Periodic written report requirement--(1) In general. For a 
manufacturer of specified property to be a qualified manufacturer, the 
manufacturer must submit periodic written reports to the IRS. A 
qualified manufacturer must follow the rules set forth in guidance 
regarding the required contents of the written reports, the attestation 
included with the written reports, the required timing and frequency 
with which to file the written reports, and the format of the written 
reports.
    (2) Increased frequency of filing written reports. Notwithstanding 
guidance regarding the timing and frequency in which to file written 
reports, qualified manufacturers may submit written reports more 
frequently than required, provided that the other requirements relating 
to the written report are satisfied.
    (3) Updating and rescinding written reports. If a qualified 
manufacturer wants to update or rescind certain information on a 
written report for a scrivener's error or missing PIN, the qualified 
manufacturer must follow the rules provided in guidance.
    (f) Applicability date. This section applies to taxable years 
ending after [INSERT DATE OF PUBLICATION OF FINAL REGULATIONS IN THE 
FEDERAL REGISTER].

Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-24110 Filed 10-24-24; 8:45 am]
BILLING CODE 4830-01-P