The Inflation Reduction Act (IRA):

The Inflation Reduction Act (IRA), a monumental commitment by the United States to combat climate change, stands as the largest ever in the country's history. Signed into law on August 16, 2022, the IRA allocates nearly $400 billion in tax incentives to accelerate the nation's transition away from fossil fuels. Notably, this legislation reinvigorates the 179D Energy Efficient Commercial Buildings Deduction and the 45L New Energy Efficient Home Credit.

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IRA's Impact on 179D Energy Deduction and 45L Residential Credit:

The IRA introduces significant modifications to the Section 45L New Energy Efficient Home Tax Credit and Section 179D Energy Efficient Commercial Property Deduction. The 45L credit, extended for 10 years, now applies to all residential buildings and incorporates updated energy standards from the International Energy Conservation Code to EPA's ENERGY STAR and DOE's Zero Energy Ready Home. The IRA also introduces changes in credit amounts and eligibility rules from 2023 to 2032. Developers meeting qualifications benefit from these alterations, which expand eligibility, create new energy standards, and determine credit amounts based on energy standards and prevailing wages.

 

In contrast, the IRA makes Section 179D permanent, modifying the formula for computing energy-efficient commercial building deductions. The deduction, applicable to buildings of four or more stories, sees an increased amount of $2.50/SF, potentially rising to $5 with wage and apprenticeship requirements met. However, LIHTC eligible basis reduction remains a limitation. These changes aim to encourage energy efficiency and provide incentives for building owners, with recent IRS guidance issued in Announcement 2023-1 clarifying reference standards for Section 179D calculations.

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List of Tax Credits and Incentives

• Renewable Energy Generation Tax Credits

• Carbon Sequestration Tax Credits

• Clean Fuels Tax Credits

• Clean Vehicles Tax Credits

• Energy Manufacturing Tax Credits

• Energy Efficiency Tax Deduction

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Choosing the Right Firm for Energy Efficiency Credits

• Tax credits and deductions are instrumental for financial savings and promoting energy efficiency.

• Collaborate with a Trusted Business Advisor: Select a firm with a proven track record in the energy efficiency space to navigate the complex landscape, ensuring maximum benefits for your business.