In today's real estate landscape, developers are increasingly leveraging a variety of government-backed credits and incentives to enhance project viability and maximize returns on investments. This blog will detail three (3) key incentives in the Inflation Reduction Act (the "Act") available to developers. First, Section 30(C) of the Act, deals with business and individual credits relating to alternative fuel and electric vehicle chargers. Second, Section 45(L) of the Act, focuses on credits for builders and developers of energy-efficient homes. Third, Section 179(D) of the Act, provides deductions for EV charging stations.
§30(C) – Alternative Fuel
If you install property to store or dispense clean-burning fuel, or if you recharge electric vehicles in your home or business, you may be eligible for the Alternative Fuel Vehicle Refueling Property Tax Credit. The property must be installed in a qualifying location, as discussed further below.
Businesses and tax-exempt organizations can receive a credit equal to 6% of the cost of depreciable refueling property, up to $100,000 per item (i.e., each charging port or fuel dispenser). This credit can increase up to 30% if the business/tax-exempt organization meets prevailing wage and apprenticeship requirements. The credit for businesses and tax-exempt entities was previously capped on a per-location basis, but the Act shifted this to a per-single-item basis, meaning each charging port or fuel dispenser qualifies for a separate credit.
Further, individuals can receive a credit equal to 30% of the cost of the qualified alternative fuel vehicle refueling property (including electric vehicle chargers) installed at their primary residence, with a maximum credit of $1,000 per charging port.
Qualified Property
- The property must be used for storing or dispensing clean-burning fuel or recharging electric motor vehicles.
- Clean-burning fuels include electricity, hydrogen, natural gas, propane, and certain ethanol and biodiesel blends.
- The Act expanded the definition of qualified property to include charging stations for 2- and 3-wheeled vehicles (for use on public roads) and bidirectional charging equipment (vehicle-to-grid, or V2G).
- Qualified property must be depreciable for businesses and tax-exempt organizations.
Location Requirements
- To qualify, the refueling or recharging property must be installed in a low-income community census tract or non-urban census tract. To see if you qualify, you can access the relevant IRS spreadsheet.
§45(L) – Home Energy Efficient Credit
This Section of the Act provides credits for builders and developers of energy-efficient homes. Eligible contractors may qualify for a tax credit of up to $5,000 per home for constructing or substantially reconstructing qualified energy-efficient homes acquired between January 1, 2023, and December 31, 2032.
Eligible contractors must construct or substantially reconstruct such homes in the U.S., own the home with a basis during construction, and sell or lease it as a residence. Homes must be certified to an eligible version of the ENERGY STAR Residential New Construction program requirements or the DOE Zero Energy Ready Home program by a third-party energy rating company.
The tax credit is $2,500 for single-family and manufactured homes meeting the ENERGY STAR Single Family New Homes program requirements, and $5,000 for homes (including single-family, multifamily, and manufactured homes) certified to the DOE's Zero Energy Ready Home program requirements.
For multifamily units, the credit is $2,500 per unit if certified to ENERGY STAR Multifamily New Construction requirements and meeting prevailing wage requirements, or $500 per unit if prevailing wage requirements are not met.
Eligible contractors must meet all requisite requirements before claiming the credit using Form 8908, Energy Efficient Home Credit. Thorough records, including proof of certification, should be kept.
§179(D) – Deduction for EV Charging
Building owners who place in service energy efficient commercial building property ("EECBP"), or energy efficient commercial building retrofit property ("EEBRP") may be able to claim this tax deduction.
Property that qualifies:
- EECBP must be installed on or in a building
that is located in the U.S. and within the scope of a specified
Reference Standard 90.1 of the American Society of Heating,
Refrigerating, and Air Conditioning Engineers ("ASHRAE")
and the Illuminating Engineering Society of North America. It must
be property for which depreciation or amortization is allowable,
and installed as part of:
- the interior lighting systems,
- the heating, cooling, ventilation, and hot water systems, or
- the building envelope.
- It must be certified as being installed as part of a plan to reduce the total annual energy and power costs for the above systems by 25% or more in comparison to a reference building meeting the minimum requirements of Reference Standard 90.1.
- EEBRP must be installed on or in a qualified
building as part of:
- the interior lighting systems;
- the heating, cooling, ventilation, and hot water systems; or
- the building envelope.
- A qualified building is a building located in the U.S. and originally placed in service not less than 5 years before the establishment of a qualified retrofit plan for the building. EEBRP must be property for which depreciation or amortization is allowable, and it must be certified as meeting certain energy saving requirements.
For property placed in service in 2023 and after, the deduction equals the lesser of:
- The cost of the installed property
- OR
- The maximum savings per square foot amount (indexed annually
for inflation beginning in 2023) is calculated as:
- $0.50 per square foot for a building with 25% energy savings
- Plus $0.02 per square foot for each percentage point of energy savings above 25%
- Up to a maximum of $1.00 per square foot for a building with 50% energy savings
Under the Act, energy savings must be measured against the latest ASHRAE standard affirmed by the Secretary of Treasury at least four (4) years before the property is placed in service. In the context of EV charging, this means: (1) if a commercial building installs EV charging stations as part of an overall energy-efficient upgrade, the cost of those stations may be partially deductible under 179(D), and (2) the deduction can be claimed by the building owner or allocated to the entity responsible for the design of the charging infrastructure (if the building owner is tax-exempt).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
