Unlocking the Possibilities of Clean Energy: New Tax Incentives for Not-For-Profits

Unlocking the Possibilities of Clean Energy: New Tax Incentives for Not-For-Profits

Being environmentally friendly is important to many nonprofits, but the costs of going green can be prohibitive. With inflation on the rise and a recession potentially lurking around the corner, it may seem that taking significant steps toward your organization's climate ambitions is mainly out of reach.

However, a recently-passed law now makes giant leaps toward making sustainability more accessible to non-taxable entities. In August, President Biden signed the Inflation Reduction Act of 2022 into law, which includes numerous tax incentives supporting the environment and clean energy. One is expanding the Section 179D tax deduction for energy-efficient commercial construction to include not-for-profit organizations.

But what are the details of this deduction, and how may the changes impact your organization? Let's take a look.

A Look at the Details

The Section 179D deduction — enacted as a temporary provision in 2005 for taxpaying entities and made permanent in Dec. 2020 — encourages resource-efficient construction and retrofits. It has helped businesses and government organizations save money while increasing efficiency by providing a deduction of up to $1.80 per square foot.

The deduction is available for energy-efficient commercial buildings that are new or are being remodeled. By providing a financial incentive, Section 179D encourages businesses to invest in energy efficiency, which leads to long-term cost savings, reduced environmental impact, and increased competitiveness.

The Inflation Reduction Act now expands the energy-efficiency deduction to buildings owned by non-taxable entities, such as charitable organizations, churches, schools and hospitals. Not-for-profits will be allowed to transfer part of the tax deduction toward building "designers," such as architects, contractors and engineers, ultimately providing the opportunity to reduce the cost of installing clean energy systems.

In addition, the Inflation Reduction Act also raised the maximum deduction value from $1.80 per square foot to $5.00.

How May This Impact My Organization?

The current economic climate is having a profound effect on not-for-profit organizations. With rising inflation and the risk of an economic downturn, many not-for-profits may worry about keeping their heads above water. Operational and supply costs have skyrocketed, and charitable donations are decreasing, causing not-for-profits to feel the squeeze at both ends. As a result, many are cutting back on their programs and services.

During this volatile environment, putting dollars towards high-cost energy-efficient building projects has likely been the last thing on any not-for-profit leader's mind.

However, the newly enhanced tax incentive provides an opportunity for most not-for-profits to consider seriously implementing renewable energy options during upcoming building construction for the first time — a game changer for the industry.

Energy efficiency is often lauded as a win-win proposition. And for not-for-profits, it very often is. By making buildings more efficient through retrofits — installing solar panels, upgrading heating and cooling systems, and improving insulation, among other changes — not-for-profits can reduce operating costs while making their facilities more comfortable and productive for staff, clients and visitors.

But finding the upfront capital to fund these projects has always been the biggest challenge. The enhanced Section 179D deduction can now help alleviate that burden, allowing not-for-profits to make the investments they need to lower their energy bills and operating costs and recoup their investment over time without tapping into valuable programmatic or unrestricted funds.

Leveraging ESG and CSR Goals

Embracing energy-efficient solutions can also help not-for-profits take significant strides toward embracing their environmental, social and governance (ESG) and corporate social responsibility (CSR) goals.

Donors are increasingly paying attention to how not-for-profits operate rather than simply what they do in communities. When donors see how their funds are being used, they are more likely to trust the organization and continue supporting its work.

It's hard to overestimate the effect that ESG strategies have had on businesses in the past two decades. What started as a movement of forward-thinking companies in the 1960s has become mainstream, with an ever-growing list of corporations adopting ESG standards to evaluate their operations. This shift has been driven in part by increasing public awareness of the need for sustainability and realizing that ESG strategies can offer a competitive advantage.

In fact, many businesses — including not-for-profits — are now finding that adhering to ESG standards is not only good for the environment and society but also good for their bottom line.

The same sentiment is true for CSR, in which a company integrates social responsiveness into its business model. Though often thought of as something only large businesses can do, CSR programs can benefit not-for-profits of all sizes. Conducting environmental practices is key to expressing ecological responsibility and increasing a favorable perception of your organization, possibly leading to increased donations, volunteerism, and legislative influence.

What's Next?

Stay tuned to CBIZ's website for more resources on the Inflation Reduction Act and how it will impact not-for-profit organizations.

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Unlocking the Possibilities of Clean Energy: New Tax Incentives for Not-For-Profitshttps://www.cbiz.com/Portals/0/Images/Hero-UnlockingthePossibilities.jpg?ver=9yvikIcf7cw-URIXshBihA%3d%3dhttps://www.cbiz.com/Portals/0/Images/Thumbnail-UnlockingthePossibilities.jpg?ver=B8ny_RyUZ0-9hIBnftPllg%3d%3dBeing environmentally friendly is important to many nonprofits, but the costs of going green can be prohibitive. 2022-10-24T17:00:00-05:00

Being environmentally friendly is important to many nonprofits, but the costs of going green can be prohibitive.

Regulatory, Compliance, & LegislativeNot-for-Profit & EducationFederal TaxOpportunity ZonesYes