# Prop. Treas. Reg. § 1.25C-2: General rules. Proposed regulation, not in force. REG-118264-23, 89 FR 85099, published 2024-10-25 . Interprets 26 U.S.C. § 25C. Par. 2. Sections 1.25C-0 through 1.25C-4 are added to read as follows: (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 §§ 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 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 × 0.3), and the credit amount under section 25C(a)(1) for the three exterior windows would be $720 ($800 × 3 × 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) × 0.3), and the credit amount under section 25C(a)(2) for the natural gas hot water boiler would be $750 ($2,500 × 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 × 0.3) but limits the amount for the $900 door ($900 × 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 × (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 × 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 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 × 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 × 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 ].