Attention all Accountants and real estate investors!

The Inflation Reduction Act (IRA) of 2022 was signed into law on August 16, 2022 by President Biden.

It’s a $737 billion investment that according to two of the senators has a goal to “fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030.”

Many energy efficiency tax incentives that exist or are currently expired have been expanded. The Act includes incentives for renovation and construction of buildings that are energy efficient by expanding and extending 45L tax credits and 179D deductions. This could be beneficial to:

• Multifamily property owners
• Commercial property owners
• Developers
• Homebuilders
• Investors
• And others

45L Energy-Efficient Home Credit Changes

• The Act extends prior rules from December 31, 2021 to December 31, 2022 such that there are no changes to the $2,000 credit per unit or the energy efficient criteria.
• The Act’s changes will be implemented from January 1, 2023 through December 31, 2032.
• The tax credit maximum per unit for both single-family and multi-family developments is increased to $5,000. Low-rise units were only eligible for this in 2022, but all residential units will be eligible in 2023.
• There has been a change that may make maximization of energy-efficient tax credits more difficult. The wages for the project that investors/builders are trying to claim credits on, in some cases, must be at or above the local rates determined by the Secretary of Labor.
• The Act mandates a lower-based line credit of $500 per unit for multifamily units;
• OR a bonus credit increase to $2,500 per unit for multifamily units if the prevailing wage requirements are met.

We are in hopes that this will help with the housing shortage and to construct more energy efficient dwellings.

179D Energy-Efficient Commercial Building Deduction Changes

• There are no changes to the rules for 2022.
• The deduction increase begins January 1, 2023.
• The permanent 179D deduction is increasing from $1.88 to $5/sq foot which is applicable to commercial and multi-family property owners with builders four stories or higher.
• Energy reduction (ER) will be changed from 50% to 25% compared to the most recent ASHRAE Standard 90.1 determination no later than four years prior to the placed-in-service date.
• Building owners that are tax-exempt can now pass the deduction to engineers, architects, and designers of the energy-efficient buildings. Previously, ownly designers were able to be allocated this from government building owners.
• After January 1, 2023, the deduction will be reduced to $.50 per square foot, plus $.02 for each percentage point above 25% ER, not to exceed $1.00 per square foot; OR taxpayers can claim the bonus deduction for $2.50 per square foot, plus $.10 per square foot for each percentage point above 25% ER, not to exceed $5.00 per square foot IF the prevailing wage requirement is met, which states that any laborers, workers, contractors, and subcontractors who worked on the project were paid wages not less than base wages determined by local labor authorities.
• The Act removes partial allowances and introduces new qualified retrofit plan qualifications.
• The Act will allow 179D deductions to be allocated to any REITS, tribal properties, and nonprofits,, and it includes the existing provision for projects that are publicly funded.

If you have energy efficient buildings or retrofits completed anytime in the prior 3 years, you may be eligible to claim either of these incentives. I’d recommend discussing these changes with your CPA or a tax specialist.

If you have any questions, please feel free to reach out!