Posted on December 7, 2022
IRA expands credits for ten+ years and reduces up-front and long-term costs of heating, cooling, lighting, and more
As of August 2022, President Joe Biden signed the Inflation Reduction Act, extending or expanding thousands in tax credits and rebates for consumers and businesses. These consumer credits apply to a mix of energy-saving goods like electric vehicles, appliances, solar panels, and upgrades like windows and water heaters. Most credits are extended to at least 2030.
Because buildings are responsible for about 40% of all energy use in the U.S., businesses and commercial building owners can also benefit from many of the same credits for energy-saving building upgrades.
Benefits extended to 10-year certainty for long-term projects
No credit or rebate expires before 2031, and some extend to 2033. This provides commercial and business operations the predictability of earning the full tax credit at their full value for at least ten years. Building owners and developers have plenty of time to investigate opportunities and or plan for new solar, wind, and other renewable energy systems.
Additionally, most of the credit value will only start to decline after ten years and after the U.S. has reduced power sector emissions by 75% from 2022’s levels. Prior tax credits expired by tax year or were renewed by Congress in burst cycles that were hard to predict.
Production and investment tax credits bring additional credits and construction windows
As technology advances, new energy efficiency tax credits have the flexibility to expand to new technologies, like battery systems, that might not exist yet. All new zero-emission technology qualifies for either the investment or production credit.
- You can earn up to a 30% credit for energy generated for using American-made technology and labor.
- Investment tax credits are available to reduce income tax liability for a percent of the cost of a solar system installed that tax year.
- Production Tax Credits generate a per kilowatt-hour for electricity generated for the first ten years of its operation. Depending on the start of the project and the energy generated, various base credits exist. Solar projects under construction before January 1, 2025 can qualify for a two-tier credit structure with a base of 5 cents per kWh, and a bonus amount to increase it to 2.6 cents per kWh.
- Energy storage and battery systems — often included with solar photovoltaic systems — qualify for investment tax credits (ITC).
- Geothermal now operates at a 2% base credit and up to 10% for qualified projects.
- Carbon-capture technology, low-hydrogen systems, and heat pumps can also qualify for credits.
Additional tax credits for building owners include:
- Up to $1,600 for insulation, air sealing, and ventilation.
- Up to $1,750 for a heat pump water heater.
- Up to $2,500 for electric wiring.
- Up to $3,000 for solar panel installation
- Up to $4,000 for a breaker box upgrade.
- Up to $8,000 for a heat pump for space heating or cooling.
Gain additional credits by using U.S. components
Building owners and project developers can gain more credits by using U.S.-made components, like U.S. wind turbines or solar photovoltaic panels.
Qualifying buildings can reduce energy bills and save with an expanded Energy Efficient Building deduction
A tier-based system begins in 2023 that presents tax credits for energy-efficient buildings. commercial buildings that qualify under the 179D Energy Efficient Building Tax Deduction that also upgrade their efficiency by 25% compared to a reference building qualify for a minimum of 50 cents per square foot of tax credits. Partial tax credits can be applied to subsystems, like lighting, HVAC, building envelope, etc.
Effective in 2023, the 179D Commercial Building Deduction also does the following:
- Under the IRA, increases the maximum allowable benefit for the 179D Energy Efficient Buildings Tax Deduction $1.88 per square foot to $5.00 per square foot — if the building meets several factors, including labor paid prevailing wages, apprenticeship requirements, and carbon neutrality.
- Lowers the minimum required savings in total annual energy and power cost from a 50% reduction to a 25% reduction. The energy and power costs are now compared to ASHRAE Reference Standard 90.1 in effect for four years prior to the in-service date of the building.
- Removes the prior “lifetime limit” and can now be taken every three to four years.
- Prior to 2023, only public agencies could allocate deductions to building designers, including contractors and consulting engineers. The IRA expands this benefit to any tax-exempt entity, including private schools, religious institutions, museums, colleges and universities, and private hospitals.
- Adds a new building retrofit program as an elected alternative deduction. This requires a retrofit plan and looks to reduce energy use intensity rather than total consumption.
Estimate your potential savings and options for your building
If you want to know an estimate of how long it will take for your building or project to start using energy-saving technologies, contact us to start talking about your potential construction project.
We use building energy modeling tools that can estimate your heating, cooling, and resource usage today compared with resource-sipping upgrades. These estimates account for the shape of your building, building envelope, orientation, location, and other systems. We can also estimate your monthly savings and expenses for energy usage.
Send us a message, call, or ask to speak to a project manager.