The Inflation Reduction Act (IRA) of 2022 offers unprecedented opportunities for businesses to save money while contributing to clean energy initiatives. With over 70 tax credits, the IRA provides more ways than ever for organizations to reduce their tax liabilities while making meaningful investments in energy efficiency, renewable energy and clean technologies. Additionally, direct pay and credit transfer elections offer flexible options for entities to monetize these credits.
Explore how your business can take advantage of these tax benefits and join the clean energy revolution.
Section 179D: Energy-Efficient Commercial Building Deduction
The IRA has expanded Section 179D, offering deductions of up to $5.36 per square foot for buildings placed in service in 2023 and up to $5.65 per square foot for those in 2024. This incentive applies to ground-up construction or improvements in energy-efficient building components like HVAC systems, interior lighting or the building envelope.
Eligible entities now include not only commercial property owners but also tax-exempt organizations, such as not-for-profits, religious institutions and tribal organizations. Real estate investment trusts (REITs) can also benefit, making Section 179D even more accessible.
Claiming a 179D deduction requires certification from an independent engineering firm to verify energy savings. Tax-exempt building owners must allocate the deduction to the design partners, allowing architects, engineers or contractors to benefit.
Investment Tax Credit
The IRA extends the Investment Tax Credit (ITC), providing a 30% tax credit for qualifying investments in renewable energy projects such as wind, solar and energy storage. Projects meeting prevailing wage standards and apprentice hiring requirements can maximize the credit, with additional bonuses for projects in low-income or energy communities.
Businesses that invest in low-income areas or tribal lands can claim an extra 10–20% in tax credits, earning an even greater return on clean energy investments.
Unlock More Opportunities
The IRA enhances various other tax incentives, including:
- Renewable Electricity Production Tax Credit (PTC)
- Business Credit for Commercial Clean Vehicles
- Clean Fuel Production Credit
- Alternative Fuel Vehicle Refueling Property Credit
- New Energy-Efficient Home Credit
These credits empower businesses to reduce costs while contributing to clean energy goals.
Direct Pay Election
A transformative feature of the IRA, the direct pay election — also known as elective pay — lets tax-exempt entities receive refundable tax credits as direct payments from the IRS. This election enables organizations such as not-for-profits and government entities to benefit financially, even if they do not have tax liabilities.
To make a direct pay election, entities must register with the IRS and file the appropriate forms, including Form 3800 for businesses or Form 990-T for tax-exempt entities.
Credit Transfer Election
The credit transfer election allows businesses with insufficient tax liability to use their credits fully. This provision can transfer credits like the PTC, ITC and others to another taxpayer for cash benefits. Both the buyer and seller can leverage this option to optimize their financial positions while supporting clean energy initiatives.
Explore how these and other IRA incentives can benefit your business. Connect with our team of experts to learn more and begin capitalizing on these opportunities today.