How the Inflation Reduction Act can Benefit Commercial & Residential Construction

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The Inflation Reduction Act contains numerous incentives for multifamily and commercial buildings, whether you’re a manufacturer, developer, architect, designer or a small construction company. Small Planet Supply’s Ben Wong has been researching what some of these benefits are in his latest blog post. 

The Inflation Reduction Act has six areas of specific interest to our professional customers, these are:

Small Planet Supply | Blog | Inflation Reduction Act | Skyscraper under construction

  • 179D Tax Deduction for Energy Efficient Buildings – New Construction & Retrofits

  • Section 48 Investment Tax Credit, and R & D Credit

  • 30C Tax Credit for EV Charging Stations and solar system installation

  • 45L New Energy Efficient Home Tax Credit

  • 45L New Energy Efficient Home Tax Credit Bonus Zero Energy

Depending on your profession, here is how the IRA can benefit you in the future. 

Benefits for the Commercial Builders / Building Owners – 179D

Tax Credit Increase for Energy Efficient New Buildings and Retrofit Construction (179D)

Energy efficient commercial buildings (and multi-family buildings over three stories) placed in service or retrofitted after January 1, 2023, will have the opportunity to qualify under IRA provisions and increase the §179D from $1.88/SF to $5.00/SF. To fully qualify for the highest deduction, the project must pay workers the prevailing wage.  The IRA expands deductions to all tax-exempt entities, including charitable organizations, religious institutions, private schools, or colleges; private hospitals, museums, tribal governments, and other organizations falling under IRC 501(c). To be eligible for this credit, energy use must be decreased by 25% with incremental increases in deduction for 50% decrease in energy use.

30C Tax Credit for EV Charging Stations and Solar System Installation 

Small Planet Supply | Blog | Inflation Reduction Act |Solar Panels in City

Tax Credit: Renewable energy generation and other “clean energy” technologies (Section 48 Investment Tax Credit)

Businesses that install solar energy systems are eligible for a 30% tax credit.  In addition, there is a 10% domestic content bonus.  To be eligible for this domestic content bonus, all steel or iron used must be produced in the United States and a “required percentage” of the total costs of manufactured products (including components) of the facility need to be mined, produced, or manufactured in the United States.

Building owners can receive a tax credit with a limitation of $5 per square foot to support energy efficiency improvements and the benefit of lower utility bills. Commercial property owners who invest in low-cost solar power can receive a tax credit covering 30% of the cost, up to $100,000 per project.

Tax Credit for Electric Vehicle Charger Stations (30C)

Businesses that install EV chargers and station equipment at their property can qualify for a tax credit of up to 30% of the cost.  While this also is not a new deduction, with the passage of the IRA, the maximum amount of the tax credit increased from $30,000 to $100,000 for projects completed after December 31, 2022.

Public Project Incentive for Engineers, Architects and Designers (179D)

Since the owner of public projects—namely the government—is a non-taxable entity and thus would not benefit from a deduction, AEC professionals themselves can claim the credit as the “designers” of a project’s energy-efficient measures. For buildings placed in service in 2023 and after, engineers, architects, and other designers can obtain §179D Deductions from tax-exempt entities, including public schools, libraries, higher education, municipal buildings, public offices, parking garages, and airport terminals.  Also included are other tax-exempt entities such as charitable organizations, religious institutions, private schools and colleges, non-profit hospitals, and any other organization falling under 501(c).

Benefits for Innovators (R & D Tax Credit)

The race to run the world on clean energy will take continued innovation.  The federal research and development (R&D) tax credit provides an incentive for U.S. businesses to develop new products or improve upon existing products or trade processes. With the Inflation Reduction Act, small businesses are eligible for the double Research and Development (R&D) Tax credit, increases from $250,000 to $500,000.  Examples of the types of R & D that may be eligible for these tax credits include:

  • Developing or engineering a new or improved product, process, formula, or software

  • Evaluating the feasibility of a product, process, formula, or software

  • Developing engineering architecture

  • Developing experimental models & prototypes

Benefits for Single and Multi-Family Builders

New Energy Home Tax Credit (45L)

45L New Energy Home Tax Credit program provides eligible contractors up to a $2,500 tax credit for each energy-efficient residential unit, which is retroactively available for projects placed in service from 2020 to 2022. The building must be three stories above the grade or less. The energy-efficient features should be fulfilled as wall insulation R-13 thru R-19+, roof insulation R-38+, double/triple pane windows, vinyl low E windows, insulated exterior doors, reflective roofing materials, extra insulated foundations and slabs, air conditioning with SEER ratings 13+, 80 percent + efficiency gas furnaces, or hydronic heating systems.  The maximum credit is given for projects that pay the prevailing wage.

New Energy Efficient Home Tax Credit Bonus Zero Energy (45L)

Also, IRA provides a new clean energy and sustainability pathway. The state and local clean energy financing institutions would be provided to support the use of zero-emission technologies like heat pumps. The projects used in disadvantaged communities would be prioritized.

Finally, the act expands the Rural Energy for America Program, which would reach more than 41,5000 small businesses and farms. New Energy Home Tax Credit Bonus Zero Energy (45L)

When the energy-efficient level of single-family home or multi-family homes can achieve certified Zero Energy Ready Home (ZERH) by Department of Energy (DOE), the amount of tax credit would be increased up to $5,000/unit for multi-family.  As in the other parts of the home tax credit, prevailing wage is necessary for receiving maximum credit. 

Products at Small Planet Supply that Help Increase Building Efficiency

ThermaCork for Envelope Improvements

Envelope improvements help to minimize heat loss and vary widely depending on the age and condition of the house being renovated. If it is a wood-framed home, empty walls and exposed floor cavities can be filled without too much inconvenience and cost with ThermaCork.expanded cork insulation Usually, it would be more challenging to insulate the masonry walls. Often this type of construction is relatively airtight, and the mass of the wall does retain and radiates some heat back into the living space, but there is still significant heat transfer. ThermaCork can be used in this application and help further reduce air leakage.

ThermaCork is a 100% natural, renewable, recyclable, and biodegradable product made from the outer bark of an oak tree, and the density is 7lb/cubic ft.  ThermaCork is an excellent thermal lag and also helps with noise-reduction. Since Thermacork repels water, it can be used in exterior walls, roofing, ceiling, flooring, and interior partition insulation. At R4 per inch,  ThermacCrk uses less space than fiber insulation, saving valuable square footage. For those who are concerned about the carbon-footprint of the materials they are using, Thermacork has the added advantage of being carbon-negative.

SANCO2 Heat Pump Water Heaters – Reduce Energy Used for Heating Hot Water

Heat pump water heaters (HPWHs) use electricity to take heat from the air and move it to the water, instead of converting electricity directly to heat. Therefore, the efficiency of the heat pump can be over 100%, like our SANCO2 heat pump water heater , which delivers a COP of up to 5.5 --- 550% at an ambient temperature of 80 F.

Knowing how the IRA program can help you design or build energy efficient buildings and perform retrofits more economically.  The Small Planet Supply team is ready to help you understand how our products can help you meet your energy efficient building goals.  If you’re curious about how the SANCO2 heat pump water heater or other Small Planet Supply heat pumps can help you meet your energy efficient building goals, you can schedule a complimentary consultation appointment with one of our engineering staff.