In August of 2022, President Biden signed the Inflation Reduction Act, allocating almost $370 billion over the next ten years for infrastructure improvements. These changes include three major revisions that effect new construction and value-add rehabilitation projects:
- Section 179D includes deductions to incentivize improved energy-efficiency in commercial and multifamily properties and increases potential credits from $1.80 per square foot up to $5.00.
- Section 45L contains credits for energy-efficient new residential and multifamily construction, up to a possible $5,000 per unit.
- Section 30C offers credits for installing EV charging stations, in certain markets, up to $100,000.
Tax Deduction for Energy Efficient Buildings – 179D:
This deduction is a permanent part of the tax code and applies to new construction or retrofitted commercial properties and larger multifamily buildings (four stories or higher). Owners are eligible to reuse this deduction every 3-4 years, as capital events and upgrades occur. The credit is a tiered system based on the percentage of energy reduction and includes a significant bonus for those companies that pay their workers a prevailing wage. Eligible improvements include interior lighting, HVAC and hot water systems, and envelope upgrades. Energy efficiency is determined relative to the most recent ASHRAE Standard 90.1 scale and will need to be certified by a qualified third party. An additional expansion is that REITs are now eligible, and non-profit organizations can allocate them to architects and designers responsible for the project. The table below illustrates the new deduction structure:
New Energy Efficient Home Tax Credit – 45L:
Section 45L gives a tax credit to developers and builders of multifamily properties based on two energy certifications: Energy Star and Zero Energy Ready Home. The IRA has extended the 45L tax credit for the next ten years and increased the credit amounts, while simplifying the energy certifications. As they do for 179D, prevailing wage labor standards apply to 45L in order to earn the bonus rate – in this case, a 5 times per unit multiplier. However, unlike the deduction above, these credits are not eligible for transfer to third parties.
EV Charging Station Tax Credit – 30C:
After expiring in 2021, the section 30C tax credit has returned, although with a few new guidelines. The 30C credit includes a 6 percent base with a thirty percent credit eligible when meeting prevailing wage requirements, up to $100,000 per station. In order to qualify, charging stations must be in certain eligible census tracts, defined as either a low-income community or not in an urban area. Non-profits are eligible for these credits, and credits can be transferred by REITs and other business taxpayers.
Consult your accounting professional for more details on these programs and reach out to a Berkadia mortgage banking professional to help you finance your next transaction and capitalize on these new tax benefits.
-Eric Bevilacqua, Associate Director