In what condition would recessed lights require a smaller clearance to combustibles?

Recessed lights, particularly those that are rated for insulation contact, are designed to safely operate in close proximity to combustible materials without presenting a fire hazard. This rating indicates that the fixture can be in direct contact with insulation without the risk of overheating, thus allowing for a smaller clearance to combustibles. Such fixtures are built with materials and design features that manage heat effectively, thereby providing the safety necessary for installation in spaces where insulation is present.

In contrast, recessed lights that are not rated for insulation contact require more significant clearance from combustible materials to avoid overheating and potential fire hazards. The ability to reduce clearance is specifically tied to the fixture's ability to handle heat generated during operation, making those rated for insulation contact uniquely suited for that condition.

Regarding the other options, conditions like damp locations or older incandescent bulbs do not affect the required clearance to combustibles in the same way. Damp locations require fixtures with specific ratings to withstand moisture exposure, and older incandescent bulbs, which generate a lot of heat, are generally advised to have more clearance rather than less. Residential applications, while encompassing a broad range of installations, do not necessarily dictate clearance requirements without the insulation contact rating. Therefore, the feature of being specified for insulation contact is what allows for the reduced clearance.