Under the recently enacted Inflation Reduction Act, Congress revised the tax code in a way that has huge implications for real estate investors, developers, design professionals, and housing manufacturers.
For qualifying energy efficient construction and renovation projects, the tax credit available under the 45L Energy Efficient Home Credit has been increased from $2,000 per unit up to $5,000 per unit and the tax deduction available under the 179D Energy Efficient Commercial Buildings Deduction has been increased from $1.88 per square foot up to $5.00 per square foot.
45L is a lucrative incentive for a wide range of real estate professionals. Real estate investors, commercial developers, single family home developers, manufactured home developers, and design professionals such as architects, engineers, and contractors all have the chance to benefit from 45L. If you and your team develop or renovate residential or multifamily properties to meet certain energy efficiency standards, this incentive structure will reward your forward-thinking practices with a tax credit of $2,000 for each unit placed into service (meaning sold or rented) between 1/1/2020 and 12/31/2022. Additionally, you could be rewarded with a tax credit of up to $5,000 for each unit placed into service following 1/1/2023. This is a significant opportunity for a wide range real estate professionals to not only contribute to a greener future, but to also harness significant tax benefits in the process.
Similarly, 179D is designed for those who design, develop, or own and operate commercial properties. This deduction is an opportunity for real estate professionals making energy efficient choices with respect to their buildings’ interior lighting, HVAC systems, and/or building envelopes to receive a sizeable tax deduction. In order for a building to be considered a qualifying commercial building under 179D, the building must meet certain energy efficiency requirements and also be either 1) a multifamily property that is at least four (4) stories tall; or 2) or any other type of commercial building (office, retail, industrial, etc.) regardless of size. For qualifying commercial buildings that were placed into service between 1/1/2006 and 1/1/2023, there is a tax deduction of up to $1.88 per square foot. For qualifying commercial buildings placed into service following 1/1/2023, there is a tax deduction of up to $5.00 per square foot. With 179D provides real estate professionals with a strong incentive to utilize environmentally sustainable and cost-effective design choices.
Navigating the intricacies of these tax programs can be daunting, but with Greysteel’s expertise, you can rest assured that you are maximizing these opportunities. Our team is well-versed in the latest developments and guidelines surrounding these incentives, ensuring that your projects not only meet the required energy-efficient standards but are also well positioned to reap the full financial benefits offered by these programs.
If you’d like to see if your project qualifies, please complete the form below.