How architects can benefit from energy efficiency tax credits and the Inflation Reduction Act

{"version":"0.3.0","atoms":[],"cards":[],"markups":[["b"],["a",["href","https:\/\/www.eidebailly.com\/insights\/articles\/2022\/6\/incentivizing-energy-efficiency-how-179d-provides-significant-tax-savings","target","_blank"]],["i"],["a",["href","https:\/\/www.eidebailly.com\/insights\/articles\/2020\/1\/energy--efficient-contractors-and-the-extension-of-45l","target","_blank"]],["a",["href","https:\/\/www.eidebailly.com\/energyefficiencyincentives","target","_blank"]],["a",["href","mailto:jsawatske@eidebailly.com","target","_blank"]],["a",["href","mailto:kgustafson@eidebailly.com","target","_blank"]],["em"]],"sections":[[1,"h2",[[0,[],0,"Energy efficiencies can translate into big tax savings. AIA partner Eide Bailly outlines how architects, designers, and building owners are maximizing opportunities from the newly enhanced energy efficiency incentives with the passing of the Inflation Reduction Act."]]],[1,"p",[[0,[],0,"The Inflation Reduction Act (IRA), passed in August 2022, significantly enhanced the Energy Efficient Commercial Buildings Deduction (Section 179D), the New Energy Efficient Home Credit (Section 45L), and the Clean Energy Investment Credit (Section 48). Here\u2019s everything you need to know about how these tax incentives benefit you and your clients."]]],[1,"h3",[[0,[0],1,"Energy Efficient Commercial Buildings Deduction (Section 179D)"]]],[1,"p",[[0,[1],1,"Section 179D"],[0,[],0,", Energy Efficient Commercial Buildings, provides a deduction of up to $1.88 per square foot for projects placed in service between January 1, 2005, and December 31, 2022, and up to $5.00 per square foot for properties placed in service after December 31, 2022, and before January 1, 2033."]]],[1,"p",[[0,[2],1,"179D Energy Deduction Enhancements"]]],[1,"p",[[0,[],0,"Starting in 2023, the base deduction rate starts at $.50 per square foot for a 25% improvement against a baseline standard and increases incrementally up to $1.00 per square foot for a 50% improvement. A bonus deduction is available for projects meeting prevailing wage and apprenticeship requirements. This bonus deduction starts at $2.50 per square foot and increases 10 cents for each percent improvement up to $5.00 per square foot."]]],[1,"p",[[0,[],0,"The IRA modifies the previous lifetime limit on using the 179D deduction to now a three- or four-year cap, depending on the ownership structure, meaning a building can be eligible for the 179D deduction every three or four years, assuming at least one of the systems contributing to energy efficiency has been improved."]]],[1,"p",[[0,[],0,"This deduction still applies to private building owners, along with certain tax-exempt entities that can allocate the deduction to the \u201cdesigner\u201d (generally architects, engineers, or contractors who are primarily responsible for designing the property). "]]],[1,"p",[[0,[],0,"Qualified tax-exempt entities include:"]]],[3,"ul",[[[0,[],0,"Federal government"]],[[0,[],0,"State or local government entities"]],[[0,[],0,"Indian tribal governments"]],[[0,[],0,"Other tax-exempt organizations, including not-for-profit healthcare"]]]],[1,"p",[[0,[2],1,"Privately owned buildings"]]],[1,"p",[[0,[],0,"All privately owned commercial buildings (industrial, office, retail, healthcare, etc.) and residential (multifamily, senior living, student living, etc.) buildings of at least four stories, placed in service as of January 1, 2006, could benefit from the Section 179D Energy Efficiency Tax Deduction. The owner of the energy-efficient commercial building property (EECBP) is eligible for the deduction. This is typically the building owner but could include tenants who have paid for and are depreciating the EECBP."]]],[1,"p",[[0,[2],1,"Tax exempt-owned buildings"]]],[1,"p",[[0,[],0,"For the first time in legislative history, energy incentives can be monetized by tax-exempt organizations. Healthcare, tribes, governments, and other nonprofits, along with the architects, engineers, and contractors that design buildings for them, are all big winners in 2023 and beyond."]]],[1,"p",[[0,[],0,"Courtesy of the IRA, all tax exempt-owned buildings (both newly constructed and renovated) that are substantially complete on or after January 1, 2023, can potentially monetize the 179D deduction and the Section 48 Clean Energy Investment Credit"],[0,[0],1," "],[0,[],0,"(see below). The \u201cdesigner\u201d of a nonprofit-owned EECBP is eligible for the 179D deduction. The nonprofit is eligible for a direct pay credit for using energy property (energy property includes fuel cells, solar, geothermal, small wind, energy storage, biogas, microgrid controllers, and combined heat and power properties)."]]],[1,"p",[[0,[],0,"A designer creates the technical specifications for installation of EECBP and could include architects, engineers, and general contractors. However, a person that merely installs, repairs, or maintains the property is not a designer."]]],[1,"p",[[0,[],0,"Projects may have more than one qualifying designer. It is advantageous to pursue this deduction as early in the process as possible. "]]],[1,"h3",[[0,[0],1,"New Energy Efficient Home Credit (Section 45L) "]]],[1,"p",[[0,[],0,"Similar to the Section 179D Energy Efficiency Deduction, "],[0,[3],1,"Section 45L New Energy Efficient Home Credit"],[0,[],0," was also introduced in the Energy Policy Act of 2005. The IRA extended the 45L Residential Credit at the current rate of $2,000 per unit for single-family and multifamily (three stories or less, above grade) through the end of 2022 and extended at increased values through the end of 2032."]]],[1,"p",[[0,[],0,"The 45L New Energy Efficient Home Credit is a credit of up to $2,000 per unit for first occupied in an open tax year and prior to January 1, 2023, and up to $5,000 per unit for projects placed in service between December 31, 2022, and January 1, 2033."]]],[1,"p",[[0,[2],1,"Section 45L Enhancements"]]],[1,"p",[[0,[],0,"The Section 45L credit is changing in 2023, with multifamily homes starting at a base credit of $500 per unit and a bonus credit of $2,500 per unit for projects meeting prevailing wage and apprenticeship requirements. Additional credits are available for projects certified under the DOE Zero Energy Ready Home Program."]]],[1,"p",[[0,[],0,"For single-family homes, duplexes, townhomes, and manufactured homes, the base credit is $2,500 per unit."]]],[1,"p",[[0,[],0,"Starting in 2023, there are no limits on the height of the qualifying project for energy-efficient multifamily projects pursuing the 45L credit."]]],[1,"p",[[0,[],0,"For affordable housing projects qualifying for the Low-Income Housing Tax Credit (LIHTC), there is no basis reduction for 45L projects, meaning qualified projects can claim both the LIHTC and 45L."]]],[1,"h3",[[0,[0],1,"Clean Energy Investment Credit (Section 48)"]]],[1,"p",[[0,[],0,"The Clean Energy Investment Credit allows for a basic 6% or bonus 30% credit on the amount of energy property installed during building construction or renovation. The bonus 30% kicks in for energy property put into service in 2023 or later if prevailing wage rules are met. There are also two more kickers: a 10% bonus for the use of domestic content and another 10% bonus if in one of the following designated communities\u2014energy, environmental justice, tribal, or rural. The domestic content bonus must meet a 40% U.S. production threshold test. An energy community is an area in which a coal mine or coal-fired power plant has closed. Nonprofits such as healthcare, tribes, and governments are also invited to take advantage of this incentive through direct pay."]]],[1,"h3",[[0,[0],1,"How do you qualify for energy efficiency tax credits and deductions?"]]],[1,"p",[[0,[],0,"The first step in understanding the energy-efficient credits and deductions is knowing if you qualify. "]]],[1,"p",[[0,[],0,"Here are some key indicators that you may be eligible for Sections 45L, 179D, or 48:"]]],[3,"ul",[[[0,[],0,"You are a building owner who incorporates energy-efficient lighting or HVAC in the construction or renovation of your building"]],[[0,[],0,"You are the \u201cdesigner\u201d of an energy-efficient building owned by a tax-exempt entity "]],[[0,[],0,"You own a 10-unit or larger multifamily building or are a production home builder"]]]],[1,"h3",[[0,[0],1,"Looking to the future"]]],[1,"p",[[0,[],0,"If you\u2019re inspired to go green and save, you\u2019ll be relieved to know the Inflation Reduction Act significantly enhances the 179D Energy Efficient Commercial Buildings Deduction and the 45L New Energy Efficient Home Credit and the Clean Energy Investment Credit (Section 48)."]]],[1,"p",[[0,[],0,"With this in mind, you should be strategizing to set yourself up for long-term success. Ten years of certainty (through 2032) allows for proactive planning, including:"]]],[3,"ul",[[[0,[],0,"Accounting and tax departments incorporating these incentives into their Capitalization Policy and Fixed Asset Ledgers"]],[[0,[],0,"Developers, owners, contractors, and architects including these incentives during design and construction"]]]],[1,"p",[[0,[],0,"These increased benefits can allow accounting and tax departments to both increase cash flow and contribute to environment, social, and governance (ESG) initiatives. "]]],[1,"p",[[0,[],0,"In addition, developers, owners, and architects can design and build sustainably while also minimizing tax liabilities."]]],[1,"p",[[0,[2,4],1,"Energy efficiencies"],[0,[],0," can translate into big tax savings. A trusted advisor can help you maximize these energy efficiency tax incentives, along with other tax savings opportunities. Eide Bailly is a leading accounting firm for energy efficiency incentives, and its Energy Incentives Team is comprised of Professional Engineers, energy modelers, and HERS raters. Contact us to learn how these tax saving opportunities may benefit your organization and determine how much you may be eligible for: Joe Sawatske, 612-253-6792, "],[0,[5],1,"jsawatske@eidebailly.com"],[0,[],0,"; Kristin Gustafson, PE, CEM, 509-252-2908, "],[0,[6],1,"kgustafson@eidebailly.com"],[0,[],1,"."]]],[1,"p",[[0,[7],1,"AIA does not sponsor or endorse any enterprise, whether \npublic or private, operated for profit. Further, no AIA officer, \ndirector, committee member, or employee, or any of its component \norganizations in his or her official capacity, is permitted to approve, \nsponsor, endorse, or do anything that may be deemed or construed to be \nan approval, sponsorship, or endorsement of any material of construction\n or any method or manner of handling, using, distributing, or dealing in\n any material or product."]]]]}