IRA INCENTIVES
FOR BUILDINGS
Decarbonization is Going on Sale
The Inflation Reduction Act of 2022 (IRA) is the most significant climate legislation in U.S. history. But what does this mean to building owners? As one White House expert recently put it, “decarbonization is going on sale.”
Two-thirds of IRA funding will take the form of tax credits, which are being enhanced to benefit more organizations, including nonprofits and even local governments. In addition, the EPAct 179D tax deduction has been made permanent, and its value has more than doubled from $1.80 per square foot to $5.
Local & Federal Alignment
The LA Better Buildings Challenge is working with the LA Department of Water and Power to align federal and state incentives with local rebate program requirements. Sign up for our newsletter, Synapse, to receive updates.
Tax Advisor Directory
LABBC will be creating a list of qualified tax advisors to share with partner buildings, for which an RFQ process will begin soon. Those interested in being included may sign up below to be notified when the application process begins.
Demystifying IRA Tax Incentives for Building Owners
LABBC’s David Hodgins spoke recently with federal tax law expert Gabrielle Jacques of Norton Rose Fulbright and energy efficiency expert Rich Maiolo of Capital Review Group about the implications of the IRA for building owners, including:
Recent changes to federal tax incentives
How to access these incentives; and
Case studies on real-world projects
Tax Incentives for Building Decarbonization
The Inflation Reduction Act outlines numerous incentives to encourage clean energy investments. Those listed below are merely a subset of those that may be most relevant for projects that advance the decarbonization of existing buildings.
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Investment Tax Credit (ITC)
This credit allows taxpayers and certain tax-exempt entities to deduct up to 30% of the cost of renewable energy systems from their federal taxes, as long as projects meet prevailing wage and apprenticeship requirements for projects over 1 MW AC.
Projects eligible for the ITC may include: energy storage technologies, microgrid controllers, fuel cells, geothermal (heat pump and direct use), combined heat and power, microturbines and interconnection costs.
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Production Tax Credit (PTC)
This credit allows taxpayers and certain tax-exempt entities to deduct $0.0275/kWh (2023 value) for the cost of renewable energy systems from their federal taxes, as long as projects meet prevailing wage and apprenticeship requirements for projects over 1 MW AC.
Projects eligible for the PTC may include: biomass, landfill gas, hydroelectric, marine and hydrokinetic.
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EPAct 179D
The Energy Efficient Commercial Building Deduction may be claimed by building owners who construct energy efficient buildings or increase the energy efficiency of existing buildings by at least 25%, with the opportunity for an increased deduction for those making higher efficiency improvements and meeting prevailing wage and apprenticeship requirements.
Previously capped at $1.80 per square foot, this deduction may now reach up to $5 per square foot.
Multifamily Rebates, Grants & Tax Credits
Though tax and other financial incentives are available for all property types, those that apply to affordable multifamily properties are perhaps most significant. This is due to the focus on environmental justice in the development of the Inflation Reduction Act, which is designed to allocate 40 percent of the overall benefits of climate and clean energy investments to disadvantaged communities.
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High-Efficiency Electric Home Rebate Act (HEEHRA)
A point-of-sale consumer rebate program that covers product and installation costs to enable household electrification, HEEHRA covers 100% of electrification project costs (up to $14,000) for low-income households and 50% (up to $14,000) for moderate-income households.
Qualified electrification projects include: heat pump HVAC systems, heat pump water heaters, electric stoves and cooktops, heat pump clothes dryers, upgraded circuit panels, insulation, air sealing, ventilation and wiring.
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Green and Resilient Retrofit Program (GRRP)
GRRP provides owners of HUD-assisted multifamily housing with capital resources to reduce carbon emissions, make utility efficiency improvements, incorporate renewable energy sources and make properties climate resilient.
Funding varies by project scope from up to $40,000 per unit ($750,000 per property) for specific retrofit measures, or “elements, to as much as $80,000 per unit ($20 million per property) for comprehensive retrofits.
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Energy Efficient Homes Tax Credit (45L)
The 45L tax credit provides eligible contractors up to a $5,000 tax credit for each energy efficient dwelling unit in a building up to three-stories tall and is retroactively available for projects placed into service from 2020 to 2022 and through the end of 2032.
The credit is typically best applied to the design of deep retrofits, or new builds, and can be used in combination with LADWP incentives (i.e., CAMR, CPP, etc.)
Opportunity Everywhere
Tax incentives are available regardless of location. But certain bonuses, or “adders,” may provide additional incentives based on geography.
Los Angeles, for example, is considered an “energy community,” which may allow for qualified projects to receive an additional 10% tax credit.
More Money for More Entities
With direct pay, public and tax-exempt entities can now benefit.
Tee Up Tax Incentives
Audits performed as part of EBEWE compliance may well set you up for tax incentives. Ask your audit and retro-commissioning provider about factoring in EPAct 179D and other tax incentives that can enhance the ROI of potential upgrades.
“The avoidance of taxes is the only intellectual pursuit that still carries any reward.”
— John Maynard Keynes, Economist & Philosopher
The information provided here does not constitute professional tax advice or other professional financial guidance. It should not be used as the only source of information when making decisions regarding design, purchasing, investments or tax implications of energy or other building upgrades, or when executing other binding agreements.
This page will be updated periodically, as guidance on the implications of the Inflation Reduction Act is ongoing. In the event that there is conflict between information provided on this webpage and guidance or notices published by the IRS, information published by the IRS will always take precedence.
Last updated Aug. 4, 2023