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The modern office is changing, with businesses choosing between full-time in-person work or embracing a remote or hybrid model. Planning your organization's next space requires big decisions, like whether to build something new or renovate a property you own.

In today's tricky economic environment, high interest rates and inflation are making those choices even harder, pushing the costs of lending and construction even higher. It might seem tough to save money, but there are clever ways around these obstacles. Considering smart tax strategies could be the key to unlocking savings and making your office plans a reality.

Some of the most popular real-estate-related tax credits to make headlines this year included the Section 45L Energy Efficiency Home Credit and the 179D Commercial Buildings Energy-Efficiency Tax Deduction, thanks to recent updates from the Inflation Reduction Act (IRA). However, there are a few tax benefits that property owners may not keep at the forefront of their minds.

Let’s look at them:

Tangible Property Regulations

If you are contemplating the renovation of a building, understanding Tangible Property Regulations (TPRs) should become an essential aspect of your planning and decision-making process. These guidelines, also known as “repair regulations,” determine whether costs associated with a renovation should be expensed immediately or capitalized and depreciated over time. By understanding these rules, you can optimize their tax treatment, potentially resulting in immediate tax savings.

Under TPRs, expenses for materials and supplies, repairs and maintenance, and property improvements are scrutinized to establish the correct treatment. For example, if an expenditure results in a betterment, adaptation, or restoration of a property, it often must be capitalized. On the other hand, routine maintenance that doesn't significantly extend the property's life or enhance its value might be expensed in the year incurred.

Properly navigating these regulations requires a comprehensive understanding of both the specific guidelines and the broader tax landscape, making professional consultation and guidance essential.

Rehabilitation Credits (Historic Preservation)

The Rehabilitation Credits present an attractive opportunity for businesses exploring relocation or wanting innovative spaces for their evolving office needs. Eligible historical properties may qualify for a 20% credit on certain rehabilitation expenses. This credit applies to construction costs related to structural features, like walls, floors, and stairs, while typically excluding other elements such as cabinets, sidewalks, and pavement.

This financial incentive serves as a compelling reason for property owners to breathe new life into historic properties, especially for the revitalization of historic Main Streets and downtown areas across the nation.

It’s important to note some recent amendments to this credit. In 2017, the code was revised, eliminating the previously available 10% credit for pre-1936 non-designated historic properties. Additionally, the 20% credit for designated historic properties is now spread over five tax years, following the 2017 Tax Cuts and Jobs Act.

Investment Tax Credit (ITC)

Last year's enactment of the IRA heralded a new era for businesses interested in investing in renewable and clean energy, ushering in substantial updates to a range of tax incentives. By aligning investments and strategies with these revamped incentives, property owners have an unprecedented opportunity to significantly reduce their tax liability.

A key highlight of the updates is the modification and extension of the Investment Tax Credit (ITC). The ITC offers a 30 percent credit for qualifying investments in renewable energy projects, including wind, solar, energy storage, and others, contingent on meeting prevailing wage standards and employing a sufficient proportion of qualified apprentices from registered apprenticeship programs.

In connection with the ITC, the IRA has introduced several additional incentives aimed at increasing investment in low-income communities. One is it provides a supplementary investment credit for projects in low-income communities, amounting to a total of 1.8 gigawatts of capacity developed annually. Also, projects situated in low-income communities or on tribal land can secure a bonus investment tax credit of an additional 10 percentage points. Projects that form part of a qualified low-income residential building project or a qualified low-income economic benefit project can avail themselves of a substantial 20 percentage point bonus investment tax credit.

An additional bonus credit of up to 10 percentage points is available for qualifying clean energy investments made in energy communities.

Next Steps

Navigating the intricacies of federal tax credits and regulations can be a daunting task, fraught with complexities that require specialized understanding. Enlisting the help of professional tax professionals can alleviate this stress and optimize your tax savings.

At CBIZ, our team of real estate tax experts is well-versed in the multifaceted federal tax landscape, ensuring that you are positioned to capitalize on all available opportunities. To explore how CBIZ can tailor solutions to your specific needs, contact us today.

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