The Inflation Reduction Act is Landmark Climate Legislation
In August 2022, President Biden signed the Inflation Reduction Act of 2022 (IRA), a landmark climate law that created and extended incentives for the next decade. In addition to healthcare, governmental revenue, and other provisions, the IRA includes a plethora of incentives for renewable energy technologies, carbon reduction investments, and energy efficiency. Further, Congress created new credits and extended old credits for a period of ten years, creating additional certainty in the sustainability community. The sheer scope of this tax law is hard to overstate - for the energy transition, the total value of the bill is nearly $370 billion in expenditures.
But, the IRA is Not Fully Implemented, Creating Confusion
To date, the IRS has not completed its implementation of the IRA. Since the IRA’s passage, the IRS has published 17 notices on the law’s development and implementation. These updates include notices and guidance for taxpayers on new tax credits and requirements set out for achieving those credits and information about proposed regulations that will implement the law. Despite this, the language in the law and in IRS guidance is not plain and currently requires repetitive, manual review to understand.
For example, the IRA’s credits include improvements for existing homes and new construction. For improving existing homes, technology improvements can qualify for a 30% credit maximum with the dollar value based on the cost of the improvement. However, each improvement type has a separate limit (up to $600 for windows, $200 per door, $500 total for doors, etc.) However, these are different from the New Energy Efficient Homes credits for new construction which are based upon meeting certain Energy Star standards or more stringent standards for zero-energy classified homes. Multifamily development can receive even more benefit so long as prevailing wage requirements are met, but those requirements are incomplete and the IRS expects to issue regulations at a future date.
Detailed Federal policy on the IRA will be in flux for the next several years, so stay current on what the IRS publishes. We will be too, and we will be sure to provide you with the detailed summaries and applicable information that is sorely needed to understand the future of your energy projects.