Energy Tax Benefits

TLDR: Energy tax benefits for the win.

The federal government wants you to go green if you own a commercial or residential rental building.

The newly enacted Inflation Reduction Act extends and expands valuable tax credits for solar panels or other renewable energy installations and electric vehicle charger units. Also, the long-available accelerated tax deduction for commercial building energy improvements is now easier to get and potentially worth much more.

These credits and deductions are complicated and subject to new restrictions.

Business Energy Investment Tax Credit

You can claim the Business Energy Investment Tax Credit (ITC) if you install solar, wind, or other renewable energy facilities in your commercial or rental buildings.

The Inflation Reduction Act retroactively increased this credit from 26 percent to 30 percent for projects begun before 2025.

Starting in 2023, you can qualify for 10 percent bonus credits available for projects

• complying with domestic content requirements,

• located in low-income communities, or

• located in communities involved with fossil fuels.

You also can claim an additional 20 percent ITC by participating in various federal housing programs.

One more thing: the ITC is non-refundable, but it is transferable. You can sell it to an unrelated taxpayer.

The ITC above expires in 2025, to be replaced with a new technology-neutral 30 percent clean electricity ITC.

Energy Efficient Commercial Buildings Deduction

This tax deduction enables owners of commercial buildings and multifamily residential buildings of four stories or more to deduct in one year all or part of the cost of various energy improvements made as part of a plan to reduce total energy costs. Such improvements include heating and cooling systems, roofs, walls, floors, and interior lighting.

Under the old deduction, building owners had to improve a building’s energy efficiency by 50 percent.

Now, building owners have to improve energy efficiency only by a minimum of 25 percent. In addition, starting in 2023, the new law increases the deduction to $5.00 per building square foot if the owners meet prevailing wage and apprenticeship requirements. If not met, the building owner may claim only a $1.00 per square foot maximum deduction.

The old deduction was $1.88 per square foot.

The buildings deduction is complex; to get it, you’ll likely need to hire a heating and ventilating engineer, a refrigeration engineer, an illumination engineer, or other similar experts.

Electric Vehicle Charger Credit

The new law extended to 2032 the credit for installing electric vehicle charger units in commercial or rental buildings. But starting in 2023, some rules change:

• The 30 percent credit is available only for projects that comply with prevailing wage and apprenticeship rules; otherwise, it’s 6 percent.

• The credit is available only for properties in low-income or rural areas.

• The annual cap on the credit increases to $100,000 per unit.

If you want to discuss these tax credits, please get in touch with me.  

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