President Biden recently signed the Inflation Reduction Act of 2022. Among many benefits, the bill aims to fight climate change, conserve energy, and reform legislation for the §45L Tax Credit and §179D Tax Deduction. The act significantly extended and expanded incentives for homebuilders and commercial building owners. The deduction and incentive can now be used simultaneously for applicable residential rental developments.
§45L Tax Credit
Internal Revenue Code Section 45L provides multifamily developers homebuilders tax credits for maintaining energy-saving requirements. The Credit previously expired in 2021 but has now been extended through the end of 2032 and retroactively extended for 2022. The 2002 standards and credit remain the same but have been expanded for the next tax year. In 2023, the height restriction for eligible buildings will no longer be enforced. The Inflation Reduction Act also provides a higher credit of $2,500 for EStar-certified and $5,000 for ZERH-certified single-family and manufactured homes beginning in 2023. Multifamily developers will need to build with prevailing wages to qualify for the maximum credit. If not, the maximum credit is $500 for EStar-certified & $1000 for ZERH-certified homes.
§179D Tax Deduction
The Section 179D energy-efficient commercial building deduction benefits commercial building owners who install energy-efficient systems. The maximum deduction amount has been increased to $5/square foot (previously $1.88/square foot).
With the Inflation Reduction Act, eligibility has been expanded to include:
- Real Estate Investment Trusts (REITs)
- Commercial building owners
- Architects, Engineers, and Designers of Buildings owned by:
o Government entities
o Not-for-profit organizations
o Churches and other religious organizations
o Tribal organizations
o Not-for-profit schools and universities