Mechanical Insulation Installation Incentive Act of 2025

Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

For purposes of section 38, the mechanical insulation labor costs credit determined under this section for any taxable year is an amount equal to 10 percent of the mechanical insulation labor costs paid or incurred by the taxpayer during such taxable year.

For purposes of this section—

The term mechanical insulation labor costs means the labor cost of installing mechanical insulation property (including property assembled offsite) with respect to a mechanical system referred to in paragraph (2)(A) which was originally placed in service not less than 1 year before the date on which such mechanical insulation property is installed.

The term mechanical insulation property means insulation materials, and facings and accessory products installed in connection to such insulation materials—

(A) placed in service in connection with a mechanical system which—

(i) is located in the United States, and

(ii) is of a character subject to an allowance for depreciation,

(B) in a manner that meets or complies with the minimum requirements of Reference Standard 90.1 (as defined in section 179D(c)(2)), and

(C) the installation of which results in a reduction in energy loss from such mechanical system.

This section shall not apply to mechanical insulation labor costs paid or incurred after December 31, 2028.

Section 38(b) of such Code is amended by striking plus at the end of paragraph (40), by striking the period at the end of paragraph (41) and inserting, plus, and by adding at the end the following new paragraph:

(42) the mechanical insulation labor costs credit determined under section 45BB(a).

(1) Section 280C of such Code is amended by adding at the end the following new subsection:

No deduction shall be allowed for that portion of the mechanical insulation labor costs (as defined in section 45BB(b)) otherwise allowable as deduction for the taxable year which is equal to the amount of the credit determined for such taxable year under section 45BB(a).

If—

(A) the amount of the credit determined for the taxable year under section 45BB(a), exceeds

(B) the amount of allowable as a deduction for such taxable year for mechanical insulation labor costs (determined without regard to paragraph (1)),

the amount chargeable to capital account for the taxable year for such costs shall be reduced by the amount of such excess.

(2) The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following new item:

The amendments made by this section shall apply to amounts paid or incurred after December 31, 2025, in taxable years ending after such date.