Incentives For Green Buildings

New federal legislation expands tax deductions

By Marianne Wilson

The Inflation Reduction Act (IRA) of 2022, signed into law on August, 16, 2022, makes the single largest investment in climate and energy in American history, which is good news for retailers and building owners looking to open facilities that are energy efficient and/or upgrade existing locations with energyefficient equipment.

The IRA expands the benefits of the Commercial Building Tax Deduction (CBTD), Section 179D of the tax code. Created as part of the Energy Policy Act of 2005, the CBTD provided a financial incentive — in the form of an accelerated tax deduction taken in a single year — for building owners to invest in energyefficiency equipment such as lighting, HVAC/hot water systems and building envelope upgrades.

The IRA significantly expands the CBTD from its previous $1.80 per square foot to a sliding-scale deduction of $2.50 to $5.00 per square foot. It also adds a new alternative framework for existing buildings to qualify for the same $2.50 to 5.00 per square foot deduction by improving their existing energy use intensity (EUI).

To qualify, a project is expected to result in a reduction of total annual energy and power costs for interior lighting/HVAC/ hot water systems by 25% or more compared to a reference building, which is a building that satisfies the minimum requirements of the 90.1 standard. (Receiving full credit requires meeting prevailing wage and apprenticeship requirements.)

Retrofits can qualify by demonstrating at least a 25% decrease in energy use intensity (measured in BTU) compared to the pre-retrofit building. A qualified retrofit plan is required, and the building must have been placed in service at least five years before producing this plan.

EV Chargers: In addition, the IRA reinstated the tax credit for businesses and other organizations that install EV chargers at their facilities, extending it through Dec. 31, 2032. The maximum amount of the tax credit has increased from $30,000 to $100,000 for projects completed after Dec. 31, 2022.

In a change, however, the credit now requires that projects pay the prevailing wage for labor and meet certain apprenticeship requirements. It also limits availability of tax credits to installations completed along approved “census tracts,” typically lowincome or non-urban areas.