Two major changes from the Inflation Reduction Act include Section 179D building deduction changes and the new direct transfer system. These go into effect January 1, 2023.
Section 179D building deduction changes
The Commercial Buildings Energy-Efficiency Tax Deduction (SS179D) provides a deduction of up to $1.88 per square foot for both building owners who construct new or renovate existing energy efficient buildings as well as designers of government-owned buildings. The IRA modifies the tax deduction for energy efficient commercial buildings with new rules for property placed in service Jan 1, 2023. These include:
- Lowering the minimum required savings in total annual energy and power cost
- Removed existing rules for partial certifications
- Provides higher deductions for meeting prevailing wage and apprenticeship requirements
- Removes the lifetime limit, permitting subsequent energy improvements
- Allows allocations of 179D deductions to all tax-exempt entities, and both public and tax-exempt organizations can allocate 179D deductions to their designers.
- Established a new retrofit program
New direct transfer system
Additionally, the IRA created two new credit monetization methods: direct pay for tax-exempt entities and full transferability of credits for taxable entities. This change establishes a market for buying and selling tax credits, as well as including all companies to take advantage of clean energy credits.
Click here to learn more about how these two new credit monetization methods can support your company’s sustainability strategy and lower total tax liability.