Is Crawl Space Encapsulation Tax Deductible?

When you’re planning expensive home improvements, it is natural to look for ways to save money. Whether it’s purchasing at a discount, settling for a cheaper product, doing things DIY, or using tax credits, there are many ways to spend less on home improvement projects.

If you’re considering crawl space encapsulation, you want to know what you can do to save money. Apart from encapsulating the area yourself, could you deduct the encapsulation cost from your taxes?

South Central Services has insulated hundreds of homes with spray foam. In our service area, encapsulation is the best solution for crawl spaces. However, it is also expensive. We want to empower you with the knowledge about the savings available to you if you choose this method.

By the end of this article, you will understand:

• The difference between a tax credit and a tax deduction
• How much money you can save with the federal tax credit
• How to file for the federal tax credit for your crawl space encapsulation

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Encapsulation: Not Tax Deductible, But Eligible For A Tax Credit.

If you aren’t an accountant, you might not think much about the differences in tax terminology. However, the difference between a tax deduction and a tax credit is essential.

When something is tax deductible, the cost is subtracted from your taxable income. For example, you would be taxed on $38,000 a year instead of $40,000 a year. A tax deduction influences your taxable income and can change the percentage you are taxed at.

When something is eligible for a tax credit, the exact amount is returned through your tax return. You can also consider it an amount subtracted from what you owe. If you make $80,000 and owe over $5,000 in taxes, a tax credit will lower the amount you owe.

Crawl space encapsulation is not tax deductible but is eligible for a federal tax credit under the Inflation Reduction Act of 2022.

Federal Tax Credits For Home Improvements

The Inflation Reduction Act of 2022 provides federal tax credits for home improvement projects through 2032. These home improvement upgrades can include insulation, air-sealing, furnaces, boilers, water heaters, windows, solar energy, and more.

Encapsulation falls under the insulation and air-sealing category. Under the tax credit, you can claim 30% of the cost, up to $1,200. A crawl space that costs $4,000 to encapsulate maximizes this tax credit.

If your crawl space costs less than $4,000 to encapsulate, you will not receive the full $1,200 in credit. If your crawl space is more expensive to encapsulate, a percentage of the cost will not be reimbursed.

Am I Eligible For These Tax Credits?

These tax credits are only available to homeowners in their existing and primary residence. These credits do not apply if you rent or are building a new home.

Can I File For This Tax Credit If I Encapsulate My Crawl Space Myself?

The insulation products that qualify for this credit do not have to be installed by a professional. Insulations like batt, blown-in, pour foam, and foam board are all examples of eligible products. Smaller products like can foam, silicone caulking, and weather stripping require certifications from the manufacturer to qualify.

If you did encapsulate your crawl space DIY, you should be reimbursed for foam board at a minimum.

Do I Have To Use This Credit On Crawl Space Encapsulation?

The insulation and air-sealing credit is available for any insulation upgrade, including attics, basements, and crawl spaces. While there is a yearly limit to the tax credit, it can be reapplied for every year until 2032.

If you have the income to invest in insulation upgrades, you can space them out over several years and claim up to $1,200 on each project because of a new tax year.

Encapsulation is just one of many home insulation upgrades that fall into this category. However, you don’t have to choose between upgrades if you’re able to tackle an upgrade each year.

Will My Crawl Space Encapsulation Maximize The Tax Credit?

Crawl space encapsulation costs between $4 and $8 per square foot. The average cost to encapsulate is $6 per square foot.

Homeowners can estimate the cost of their project by multiplying the square footage of their crawl space floor by the average price per square foot to encapsulate.

If your crawl space has tall walls, a stone foundation, multiple support pillars, and houses HVAC equipment, you can plan on paying $8 per square foot. Many factors influence the cost of encapsulation, but these four are good predictors of costs being driven up.

Interested in estimating the cost of encapsulating your crawl space? Check out our guide with sample calculations.

It is important to note that the tax credit can only be deducted from your taxes owed until no taxes are owed. If you owe less than $1,200 in taxes and maximize the tax credit, you will not receive the excess credit as a tax return.

How Do I File For The Federal Insulation Tax Credit?

Everyone handles their taxes differently. Some hire a professional to sort out their taxes each spring. Others have a family member they rely on for unofficial tax advice. Many others file online through a free service. Regardless of how your taxes are handled, you’ll want to keep track of a form from the IRS.

When you or your accountant submit your tax return, you’ll need to file Form 5695 to account for the money you spent on your encapsulation.

The Bottom Line About Encapsulation And Tax Reductions

While crawl space encapsulation for a homeowner cannot be used as a tax deduction, the federal tax credit for insulation and air-sealing makes tax savings possible. If you encapsulate your crawl space, you are both insulating and air-sealing an area of your home. Not only will encapsulation lower your energy bills and improve your air quality, but you can also save up to $1,200 by filing for this tax credit.

Now that you know how much you can save on crawl space encapsulation, your next step is to:

• Calculate how much encapsulation would cost for your crawl space
• Walk through the encapsulation process with South Central Services
• Discover why you should work with South Central Services for your encapsulation