Inflation Reduction Act Signed Into Law
President Biden signed the Inflation Reduction Act (IRA) into law. The IRA is the culmination of years long debate and negotiation over what to include and exclude in Democrats’ signature reconciliation package. The legislation passed through both chambers of Congress on party-line votes against unanimous Republican opposition.
The IRA includes roughly $385 billion of climate and energy spending and tax breaks to promote clean energy generation, electrification, energy efficiency upgrades, and electric vehicle (EV) adoption. The law also includes increased health care spending and provisions that allow Medicare to negotiate the price of certain prescription drugs for the first time. Revenue will be primarily raised through the imposition of a 15% minimum tax on corporate income and through cost saving measures from prescription drug price negotiations and boosted Internal Revenue Service enforcement. The IRA is expected to reduce the deficit by roughly $300 billion over a decade.
Provisions of note for IWLA members include:
Energy Efficiency and Clean Energy Tax Credits
Expansion of the 179D tax credit tax deduction. Beginning January 1, 2023, the maximum allowable benefit increases from $1.88/sf to $5.00/sf of building area. 179D is a popular tax incentive that provides building owners and eligible designers/builders the opportunity to claim a tax deduction for installing qualifying energy efficient systems and buildings. Tenants may be eligible if they make construction expenditures.
Includes credit for qualified energy efficiency improvements for residential energy property through 2032. The credit would be increased to as much as $1,200 annually, from a $500 lifetime cap, for certain expenditures.
Incorporates the production tax credit for solar powered energy under a new Clean Electricity Production Credit. If a solar power project meets the prevailing wage requirements, then it will receive a tax credit of 2.5 cents/kWh for the first ten years of a project’s life. If a project does not meet prevailing wage standards, it will earn only 0.3 cents/kWh before adjustment for inflation.
Extends the section 48 energy investment tax credit (ITC), which allows taxpayers to claim a tax credit for the cost of energy property. In most cases, the provision extends the credit for property for which begins construction before January 1, 2025. The 6 percent base and 30 percent bonus rate is provided for solar energy property.
Commercial Electric Vehicle Credits
Creates a new credit for qualified clean commercial electric vehicles. (Vehicles subject to depreciation or placed in service by a tax-exempt entity)
The amount of credit allowed with respect to a qualified commercial electric vehicle is equal to 30 percent of the cost of the vehicle, up to $7,500 in the case of a vehicle that weighs less than 14,000 pounds, and up to $40,000 for all other vehicles.
Tax-exempt entities have the option of electing to receive direct payment from the U.S. Treasury.
Hybrid vehicles powered by an internal combustion engine are eligible for a reduced credit of 15 percent.
For more detailed information regarding the aforementioned credits, please see IRA Summary of Subtitle D. Full details on various provisions within the IRA are not yet fully developed. The IRS will need to develop, publicize, and provide guidance on more specific and detailed tax related questions.
To become an IWLA member visit, http://31y.93c.myftpupload.com/become-an-iwla-member/