Federal funding is on the way to support your energy efficiency or EV charging project, courtesy of the recently passed Inflation Reduction Act, or IRA. The bill is being hailed as the most significant federal effort yet to address climate change.
EMC is always on the lookout for ways to leverage these types of public policy initiatives. Among the measures supported are energy efficiency retrofits including LED lighting, and programs to support the transition of the transportation sector to electric vehicles.
Among the provisions included in this bill is the expansion of the Section 179D tax deduction for building energy efficiency projects. Eligible projects include those related to interior lighting, HVAC and the building envelope.
Section 179D previously allowed for energy efficient investments to qualify for immediate tax deductions up to $1.88 per square foot. The new IRA parameters, which take effect on January 1, 2023, increase deduction levels to between $2.50 and $5.00 per square foot, depending on the building’s energy efficiency level.
An additional feature in the IRA bill is known as “deduction reset.” Currently, the maximum 179D deduction can be taken once over the life of the building. With the passage of IRA, the maximum deduction would now be available every three years.
Note that this is a deduction from taxable income―the actual dollar value of this is dependent on the business’s effective tax rate.
Electric Vehicle Charging Stations
Electric vehicle charging stations were previously eligible for a 30% tax credit, up to $30,000 per location, through the end of 2021. This is a direct credit off taxes owed—not the deduction from taxable income as used for energy efficiency.
The IRA extends this credit through 2032 and substantially restructures the credit. The bill provides a base credit of 6% up to $100,000 per project. In addition, it provides a bonus credit totaling 30% for expenses up to $100,000 for each project if the taxpayer satisfies Davis-Bacon prevailing wage requirements during construction of the project.
Importantly, this credit is only available if the property is placed in service in a low-income community (under 26 U.S.C. § 45D(e)) or rural census tract. The definition of these criteria is still in progress but is expected by the end of 2022.
Consult Your Tax Advisor
EMC strongly advises that customers consult their own tax advisors to confirm the expected benefit of the IRA provisions.
Kris Leaf is EMC's Senior Manager of Customer Incentives. He has developed and managed energy efficiency incentive programs for numerous utilities including Xcel Energy, ComEd and MidAmerican Energy. Kris has a degree in Mechanical Engineering from the University of Minnesota and completed coursework toward a master’s degree in Sustainable Business from the University of Wisconsin-Madison.