Name: Next-Gen Buildings: Why Passive House is the Future
Uploaded: 2025-06-17T16:46:15.518Z
Duration: 30 min 24 s
Description: Next-Gen Buildings: Why Passive House is the Future

Transcript for "Next-Gen Buildings: Why Passive House is the Future": Alright. Well, welcome everyone. Thank you for taking the time out of your day. Today's webinar, we're going to talk about next gen buildings and why we believe that passive house is one of the future construction standards that everyone should be paying attention to. So with that, we'll start with a quick introduction. So hello, everybody. My name is Mark Bacon. I'm the practice lead for our energy efficiency or commercial real estate service line. Professional engineer, been doing energy efficiency for ten years, been probably 10,000 energy studies. So fairly familiar with these and looking forward to kinda working it through with you as we go. And then, Ethan, I'll let you introduce yourself and then I'll talk a little bit about who lateness. Awesome. Thanks, Mark. My name is Ethan Clifford. I'm a 45 l consultant here at Leighton. I have over five years experience in the energy rating industry, focusing on HERS ratings, Energy Star, zero energy ready homes, and passive house verification. Perfect. Thanks, Ethan. So I guess just a real quick background here about Latent. So we're an international tax consulting firm. The way I like to explain it is I used to work for a big CPA firm, and we deal with tax incentives. The tax code in The US is really, really broad. Companies like Latent allow you to specialize in very particular things. So things like Passapetos forty five l one seventy nine d that we'll talk about later. But can't expect your CPA to know everything, so they pivot to companies like Leighton. We were in 16 countries, been in business twenty five years. So definitely fair bit of expertise in the area, and we're looking forward to going through the webinar specifically on Passive House today. Alright, Ethan. If you go to the next slide. Polling question. I know this is not for CPE credit, for those of you out there who are familiar with being CPAs and CPEs. But we do like to toss in a couple questions just to make it a little more interesting for you. So have you ever built Passive House in the past? Be interested to see kinda what the answers are here as we go through. But, obviously, we're gonna go a little quick, preview here of what PathSpouse is. But if you get a chance just to answer in the poll, just so we can get a rough idea what our audience is looking at. Alright. And even yeah. Alright. Thanks, Mark. Well, you are up here. Alright. Thank you. So a little bit of background here. So what is Passive House? For those of you who are not familiar, Passive House is a green building certification offered by Phius as well as Passive House Institute. The certification process, includes an in-depth design review, energy modeling, and testing and verification throughout construction. The key features of Passive House are high performance mechanical equipment, high performance insulation and fenestration, so your windows and doors, airtight envelope, balanced ventilation to control moisture as well as the indoor air quality. And, due to these components, minimal, heating and cooling loads are actually used in the building. So there's a great energy reduction there. Okay. So Passive House growth. So why is Passive House increasing in popularity? Well, with many states adopting ICC 2021 project teams are, being exposed to more advanced energy efficient standards, and that sort of closes the once much wider gap between code construction and PHIUS or Passive House. Also, some cities and towns have already adopted, Passive House as a, option to code compliance, like here in Massachusetts, for example. Additionally, Passive House offers great savings and incentives. Passive House buildings can or Passive House buildings use 40 to 90% less energy per square foot compared to conventional construction, which in turn lowers your utility bills. And also, there are a great number of tax incentives and rebates, which we will cover, in the upcoming slides. And, another notable characteristic of Passive House is the resilience and durability of Passive House projects. They offer extended comfort through severe weather events, power outages, partly due to the very super insulated thermal envelope windows and mechanical equipment. And also, many of you may have seen in the media coverage, a PHIUS certified home actually survived California wildfires. Not saying all PHIUS projects will survive a wildfire, but, it's very it shows the, durability of the construction. Alright. Thanks, Ethan. So I guess with that in mind and just bear in mind, this is only a thirty minute webinar, so we won't have a whole lot of time to get into this. But you can see the growth in Passive House is becoming a much more popular way of doing things. The really interesting thing with Passive House is it automatically qualifies you for a number of incentives. And the way I like to look at it is there's really two ways for the government to try to drive more efficient building. You've got carrots and sticks. If you're familiar with Local Law 97 in New York City, that's a stick. It's a penalty for not meeting certain emission standards. The carrots are things like what is up on this screen right here. So if you're the government, you wanna incentivize better building, tax incentives are a great way to do it. As I mentioned before, the great thing about if you're doing passive house specifically, if you're doing FIES, you automatically qualify for some of these tax incentives. So 45 l is a good example. If you are designing multifamily building and you're building to pass the past standards, specifically, fees, you automatically will qualify for this 45 l tax credit, and that is the energy efficient homes credit. Now that is worth up to $5,000 per dwelling unit. So if you or any of your customers are thinking about past house and they say things like, well, what is the cost? You can pretty quickly counter with, yes, there are some costs, but the great thing is you're gonna automatically qualify for some of these tax incentives. Now that makes it a lot more affordable to leverage it for some of these technologies. So that's just 45 l. I mean, you can go learn more about it from our website. If you haven't used it in the past, it's It's a really great tool for financing projects. The second one is one seventy nine d. So that is if you are doing nonresidential. So if you're doing commercial passive house in any way, you should be looking at a one seventy nine d tax deduction. The reason why that's important is for the same reason as 45 l, if the standard you're building to, we'll give you a one seventy nine d tax deduction. It's not guaranteed like 45 l. 45 l is guaranteed. But one seventy nine d, if you're building to modern code, I'm gonna tell you it's practically guaranteed that you're gonna get a one seventy nine d deduction. There are a few things in place. So one seventy nine d is worth up to $5.81 a square foot. What I generally say is you're gonna want a building with at least 30,000 square feet. So when you get into the smaller buildings, not that I don't wanna do the study, it's just that the benefit may not actually be there. It'll end up being a tax deduction that may not move in the home for your client. Not say that I won't do it, but general rule of thumb is you need to be north of 30,000 square feet. Same with 45 l tax credit. You probably wanna be north of 10, maybe 20 dwelling units, before the tax credits are really gonna work out for you. But $1.70 $98.45 l, definitely worth looking into ones on a per square footage base, ones on a per unit base. So, obviously, the more units and the more square footage you put in, to pass those standards, the better it's going to be. The really interesting one for you, and Ethan's gonna talk about it a little bit more later, is the investment tax credits. Now there's a lot going on with investment investment tax credits right now, but if you look at it, the way it's set up really is you can get 30%. It can actually go up significantly of the cost to install these energy efficient features in a building. You can get that back in the form of a tax credit. Classic example is solar. You put solar panels on a roof. Probably if you've had any solar installers, think about doing solar. They're gonna tell you about a 30% tax credit. That's this. It's section 48 e. Now if you're doing things like low income housing, if you're in an energy community, or if you're, using domestic content, if you're paying prevailing wage, you get all of these adders. So, realistically, in the 30 to 50% of the tax credit range is pretty reasonable for a lot of these projects. So if you hear your clients say things like solar, geothermal, probably not combined heat power, but solar, geothermal, wind would be the other one if they're talking about that. You should really be looking at the section 48 e. So definitely a good way to do it. The other thing on the slide that's really important to cover is I'm gonna give you probably the most important and easiest question to ask. So whether or not somebody can leverage tax incentives is related to this fourth bullet point. It's called the cost segregation study. Now what that question is, you ask your client. Before you ask them, do you wanna take tax credits or deductions for energy efficiency, the best question is to ask them, are you doing cost segregation on your bill? That tells you a few things. It tells you that they can use the basic mechanism by which these work, which is accelerated depreciation. So the idea being the dollar today is worth more than a dollar tomorrow. I heard a good analogy for what a cost segregation study is. The idea is that, you know, the carpet in your office is not going to last for the full life of the building, and a building life is generally considered in thirty nine years of its commercial, twenty seven and a half is residential for tax purposes. Carpet's not gonna last thirty nine years or twenty seven years. So you're able to accelerate that depreciation on your tax return and take it over the course of five years. The way to tell whether or not you can cost segregate something is take a building, lift it up, turn it upside down, and shake it. And then it falls off, you can probably do cost segregation on. So it's a very crude analogy. But if your clients are doing this, then they probably also can do these taxes set up. 45 l one seven ninety and ITC. If they're not doing cost segregation, there may be a financial reason why they're not. So if you want the litmus test for whether or not any of your clients should be doing tax incentives for their passive house building, ask them if they do cost segregation. So just kinda give you the the easy button for this one, you know, cost segregation questions. I will say the other important thing, couple of other things to consider with this is when you do pass the house, there are a lot of additional incentives. The tax incentives are part of it, But a lot of the main reason why you wanna do it is you actually wanna get better financing options. So there is a company out there called PACE Equity. They have something called Sears program. That gets you a significant discount on your ability to leverage some of these financing options. There's also, if you're familiar with some of the lending options, Fannie Mae, there's green financing. It reduces up to 25% basis points. Sears does up to 70 basis points. Very important information for you to be able to leverage. The angle I like to take with a lot of our clients to say, tax incentives are great. They will help you fund part of the project. The thing you really want is that a passive house building is going to rent better. Resale is going to be better. There's a lot of different reasons why you wanna do that. Better mortgage rates, better rental rates, better resale rates. I mean, people wanna be in nice places, basically. So tax incentives help you justify some of those cost changes. So, again, we're only in a thirty minute webinar just to give you an idea of some of these, topics. And I think Ethan is gonna walk us through as a hazardous verifier things that he wished he would knew, you know, before he joined late and started talking about taxes. So go ahead, Ethan. Yeah. Exactly. So, I just wanna briefly touch on what I wish I knew about, some of these financial incentives, when I started as a FES verifier. So a little bit of background. I began my FES verification, in the multifamily affordable housing sector. Here I worked with nonprofit developers and building owners, throughout construction to ensure a fee of certification at the end. And at the time, I was quite unaware of any financial incentives, focused around green building certifications, maybe except for state and local rebates. However, it wasn't until I joined Leighton that I really figured out that there is potentially money left on the table for some of the projects that I worked on, more specifically around the investment tax credit as well as the, one seventy nine d deduction. And although these, nonprofits were essentially tax exempt, and they cannot take one seventy nine d, they could actually, allocate that to their architect or, say, a mechanical design engineer. And one specific project kinda comes to mind. It was, the first nonresidential PHIUS project that worked on, which was a state agency maintenance facility located, outside of Worcester, Massachusetts. So this project used, geothermal heat pump system as well as solar panels, which essentially would have qualified them for the ITC payout, as they are a tax exempt entity, of at least 30% or more, of the cost of solar and geothermal. They also could have allocated their $1.79 d deduction to the mechanical design engineer and architect. So my takeaways from this, this project were that if these incentives can be incorporated into the project planning at an early stage, this is from a verifier point of view. They can help reduce some of the financial strain of any sort of, obstacles or kind of speed bumps or hurdles throughout the construction process. As a verifier, some of the first projects that I worked on, we had to make several visits, for, say, the whole building, blower door test, to to ensure final certification for PHIUS. In these visits, they cost money, and those visits aren't essentially planned for or budgeted for in the beginning of a project. So I think, incorporating these incentives in your planning can help alleviate some of that financial strain in the projects. Yeah. Thanks, Ethan. So we've got another, polling question. So this is gonna be a fun one. We're curious to get everyone's opinion on this. So Energy Star, very important for because very important for, oh, I was gonna say, advanced building standards, but really any building standard. So if you are familiar, there's been a lot of talk around what's gonna happen with Energy Star. So what do you think they're gonna do with it? So I'd I'd be kinda curious to see what kind of information we get later, but you can see from the poll, there's really three things that have come up. Is the Energy Star first up, Energy Star program cost 32,000,000 to run, delivered, like, $40,000,000,000 in energy savings. But what a lot of people have been saying is we need to move it somewhere. Now I'm not exactly sure where a lot of it came from. I think there's probably a disconnect between people thinking Energy Star appliances versus Energy Star building code, verification. That's just my personal opinion. But there's basically three options on the table for Energy Star. Leave it as is as kind of a benchmark program. Get rid of it completely, which I think would be crazy, or potentially privatize it. You could send it to another organization. So there's a few options in play. But the reason why we're talking about Energy Star is programs like Passive House, programs like 45 l heavily based on things like the Energy Star program. So just as an example for you, you know, 22% of all homes in 2024 were Energy Star certified. As I mentioned before, it cost 32,000,000. It's actually required in a lot of states, like, things and even a lot of different programs like Berto require you to use Portfolio Manager, which is part of Energy Star. So it is so integrated that the government actually sells it, basically, license it to other countries. So the thought was, like, you could privatize it. It could go back to, DOE, for instance, and they could be the one who administer Energy Star. I think it's gonna be interesting to see. It's gonna cause a lot of ripple effects, specifically, really 45 l. So if you're gonna take those 45 l tax credits that we talked about before, they are based on building to Energy Star standards. So if they get rid of Energy Star, then 45 l becomes hugely problematic. However, you may have seen some changes in the big beautiful bill that actually just came over the Senate Finance Committee, did their analysis yesterday. One of the things they're suggesting is that 45 l will basically be sunset a little earlier than expected. It was supposed to be sunset in 2030 '2. We're not exactly sure what's happening there. But, what would happen now is if you have a project that is in progress last I heard it was as long as it was in progress before May twelfth of this year, you'll be able to claim 45 all the way up until the end of twenty twenty six. So if you are working on a multifamily path in house project that has already started, you're gonna wanna look at 45 L. In the future, we'll kinda see what happens. ITC, the plan was the investment tax credits to solar, wind, geothermal, all these other things. They're gonna phase out. Geothermal is actually set to continue. That's a whole separate conversation. Phase out will basically start in 2028. I will say the nice thing is the senate finance committee version of the bill removes what I had thought of as potentially a poison pill, which was construction has started in sixty days of whenever the BBB gets passed. That would have been really problematic. It's kinda hard, as you can imagine, to turn around a start of construction within sixty days. So unless you had already planned the project, that's going to be an issue. Looks like they removed that from the incentive finance committee. So in theory, investment tax credits are still going to exist, and be something you can leverage. One seventy nine d is still fine in the big, beautiful bill. Cost segregation, we're gonna go back to a 100% bonus depreciation, it looks like, which, as I mentioned before, that example of you shake everything out of the building and you can accelerate the depreciation into five, seven fifteen year life. You'll be able to take all of that in year one. So really significant cash flow advantages to cost segregation. So if any of your clients are taking advantage of it, they should be. But what I really wanted to cover here, and Ethan's gonna walk us through some state incentives after, It's very important to realize it's easy to get caught up in, like, doom and gloom. Like, oh, what are they doing with Energy Star? What's going on with the 45 l and other clean energy bins? We tend to forget how much importance a state plays in this and even utility companies. The state utility companies want you to be incentives, efficient. It saves them. It saves them the grid like the I mean, Texas, we've got a problem in Texas with people using too much energy and the grid going down as a result whenever there's a storm. Being efficient is just good business for everybody. So Ethan's gonna walk us few through a few state programs. I will say we've got probably nine minutes left. It's probably gonna take Ethan about five minutes to go through this. So if you get any questions while Ethan's talking, just drop them in the chat, and we'll see if you can answer them after it's done. But with that, Ethan, you wanna walk us through some of the real interesting state incentives we've been looking at? Yes. Yes. Of course. So I'll I'll try to get through these quickly. But starting with Massachusetts, Massachusetts has a Mass Save program, which offers, all electric home incentives. For this webinar, I'll just be focusing on the passive house incentives. So Massachusetts offers $500 a unit, for energy modeling reimbursement. This would be for your WIFI modeling, for, say, a PHIUS certification. $750 per unit at design certification and then $3,000 a unit at final certification. So if you had a 100 unit fee of certified building in Massachusetts, you could receive up to $395,000 in rebates. And then if you were to add 45 l onto that, you could get an additional 100,000 or $500,000. Connecticut. Connecticut has the energized CT program, also all electric home incentives. This is a three tiered program, where passive house projects would require tier two or tier three, of $2,500 per unit or $3,500 per unit with an additional $1,500 per unit, as a passive house, bonus adder up to $60,000 that is. So say if you had a 60 unit passive house building in Connecticut, let's assume, say, tier two, you would get a $150,000 for the all electric rebate and then the additional $60,000 passive passive house adder. And then New Jersey. So New Jersey, the New Jersey clean energy program just unveiled this program in early May. This program is a little bit different from the previous states I have mentioned. This offers a dollar amount per square foot for passive house certified projects. They offer $2.50 per square foot, and they also have an additional greenhouse gas bonus. So if your project offsets, anywhere from point seven tons to three tons of c o two emissions per 1,000 square feet, you can gain an additional 25¢ per square foot or $1.50 per square foot if you're on the higher end of, emissions abatement. So for example, if you had a 75,000 square foot building that offsets three tons of c o two per 2,000 square feet, you would receive a total of $300,000 in total rebates. And lastly, we have Rhode Island. The Rhode Island new construction program, this is very similar to Connecticut's program. However, this program takes into account the unit count. So here we have a chart that shows, the various unit counts and the associated tiers. This program is similar to Connecticut in a way that Passive House would require tier two or tier three. So let's say you had a 40 unit FIES certified building. If it was tier two, you would get 64,000, as well as, tier three, you get $84,000. So that being said, there are like Mark had mentioned, these state programs and state initiatives are, also incentivizing in outside of just federal tax incentives, which kind of are up in the air as Mark had mentioned. So I think shifting your focus to these currently more stable programs are great incentives to take advantage of. Alright. Now with that, thanks for the the expertise there, Ethan. We're at the end of our presentation. We got about four minutes left to handle questions. And I know, Ethan, you can't see the chat, so I'm gonna ask you a softball question, I think. Not maybe not a softball, but maybe just give everyone an explanation. But, I'm not an expert in Passive House. So James had asked in the chat, what is it that Passive House does to rely on getting the appropriate thermal comfort without heavily maintaining heating cooled systems? So good question, James. I would say it has to do with the well insulate or the thermal envelope. That's your insulation, your windows, your doors, also the very airtight requirements of building a passive house. For, say, Passive House Institute, I believe it's point six ACH, which is an extremely tight building. So with your very high performance insulation windows and the air tightness, you can you reduce heat loss. So I think those are the key components that I kind of point to that provide that super insulated comfort level even in severe weather or power outages, things I had mentioned earlier in the presentation. Great. Thanks, Ethan. I think that makes sense. Another question actually just came up. We got two minutes left to answer this one. So I guess we'll answer sorry. Chet just asked the question before. Does the house have to be certified in order to receive the credit? I assume we're talking about the 45 l credit. So in order to receive the 45 l credit, the home must be certified under Energy Star as well as or zero energy ready homes. The thing with Phius is Phius sort of intertwines those two programs as pre prerequisites for the Phius certification. So you could say, if you ended up attempting to build a PHEAS project and you can't cross the finish line, if you can kind of check off those individual boxes of Energy Star and zero energy ready homes, you can receive 45 l as well as you could only check off the Energy Star certification, and you'd also receive the lower end of the, 45 l credit. And then the follow-up question on Ethan was, who does the certification? So I assume it is Phius is doing the certification saying this is a Phius certified building. Correct? Yes. Phius as well as PHI. Yeah. And I think, I'm more familiar with PHIUS, so that's where a lot of my experience and examples come from. So PHIUS would be the certifying party in that situation Right. For the PHIUS certification. Great. Alright. Well, thanks, Ethan. I know, we've only got about thirty seconds left, so I wanna make sure I actually wrap it up before the webinar closes. So, but with that, if you do have any other questions, there's a handy dandy QR code there so you can ask Ethan some more questions or maybe me too. But if we get a chance, obviously, schedule a meeting with us. We would be happy to chat through one of us. We do have a lot of other webinars available. So if you have any other questions or just any general articles are all over our website, so please do a little bit of research. And, otherwise, I hope everybody has enjoyed this, and enjoy the rest of your day. Thanks, everyone. Thanks, everyone.