Energy Efficient Commercial Buildings Deduction Policy Updates

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Incentives for energy efficiency upgrades promote energy savings and spur jobs for the construction and manufacturing industries. NMHC supports an expansion of the current commercial building energy efficiency incentive to encourage substantial investments in older properties. Read on for the latest legislative, regulatory and industry actions related to this topic.

Read on for the latest legislative, regulatory and industry actions related to this topic.

Jan 3, 2023

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IRS Releases Reference Standard for Energy Efficient Commercial Buildings Deduction

The IRS on December 23 announced the applicable reference standard which taxpayers must meet to claim the Energy Efficient Commercial Buildings Deduction. The Inflation Reduction Act included changes to this deduction that applies to commercial buildings with four or more stories.

What This Means: Under the IRS’ announcement, taxpayers must use ASHRAE Reference Standard 90.1-2007 for property placed in service after 2014 and before 2027. Beginning in 2027, taxpayers must use ASHRAE Reference Standard 90.1-2019. Property placed in service before 2015 must use ASHRAE Reference Standard 90.1-2001. Finally, taxpayers who begin construction before 2023 may use ASHRAE Reference Standard 90.1-2007 irrespective of when a building is placed in service.

Read the Full Details from the IRS to Learn More: Announcement 2023-01

Nov. 29, 2022

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Treasury & IRS Provide Guidance on How to Take Advantage of Energy Tax Incentives Included in the Inflation Reduction Act

The Treasury Department and Internal Revenue Service on November 29 published guidance on how wage and apprenticeship rules may be satisfied to qualify for enhanced energy tax incentives under the Inflation Reduction Act.

What This Means: To qualify for enhanced incentives, taxpayers must pay prevailing wages and/or employ apprentices from registered programs. Taxpayers must meet both requirements to enjoy the enhanced Energy Efficient Commercial Buildings Deduction and the Clean Electricity Investment Credit. Taxpayers must meet the prevailing wage requirement to receive the enhanced New Energy Efficient Home Credit.
Industry Impact: Significantly, the guidance sets November 30 as the beginning of the 60-day period in which taxpayers must begin construction of a facility (or installation of energy efficient commercial building property) to receive enhanced tax benefits without satisfying the prevailing wage and apprenticeship requirements. Apprenticeship requirements may be waived if qualified employees cannot be found. Finally, the guidance enables taxpayers to establish the beginning of construction or installation by satisfying either a physical work test or by paying or incurring more than five percent of total costs of a facility.

Learn More: Access Treasury resources on the specifics of this guidance: https://home.treasury.gov/news/press-releases/jy1128

Oct. 20, 2022

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Infrastructure Investment and Job Act & Inflation Reduction Act Include an Array of Energy Tax Incentive Opportunities for Industry

The passage of the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) allocates a significant amount of funding to support climate-focused and clean energy initiatives.

What This Means: Many of the provisions within the bills establish new programs that support the Biden administration’s clean energy and climate-related goals by reducing emissions, transitioning to renewable energy sources, retrofitting buildings and technology, supporting cleaner construction, and building out a renewable electric grid.
Industry Impact: Several provisions also present potential opportunities for multifamily housing entities to benefit through an array of direct and indirect funding programs related to electric vehicles, efficiency, resiliency, and tax credits.
NMHC's Viewpoint: The passage of these bills left federal agencies with a long list of programs to modify or establish—which could take months or years to complete. In the coming months, NMHC will work to ensure the efficiency of the process and the continued inclusion of the multifamily industry.

Learn More: NMHC has compiled an industry resource highlighting “everything you need to know” about the provisions included in this legislation: https://www.nmhc.org/news/nmhc-news/2022/everything-you-need-to-know-multifamily-opportunities-included-in-the-infrastructure-investment-and-job-act-inflation-reduction-act/

Nov. 19, 2021

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House Passes Reconciliation Legislation that Includes Energy Efficient Commercial Buildings Deduction Changes

After months of haggling, House Democrats passed President Biden’s signature social spending package, the Build Back Better Act, by a vote of 220-213. Notably, the previously proposed changes to the Energy Efficient Commercial Buildings Deduction remain intact.

What This Means: Reference the below September update for a breakdown on what this means for the industry.
Industry Impact: Although the originally proposed Ways & Means legislation (highlighted below) included several pay-fors alongside industry tax incentives and infrastructure measures. Following months of NMHC advocacy, several previously considered tax increases have been left out of the package—including any changes to like-kind exchanges, increases in the ordinary income tax rates, the general 20 percent capital gains tax rate, the tax treatment of carried interest, the 20 percent pass-through deduction, and the taxation of unrealized capital gains at death. A provision in the Ways and Means bill that would have restricted the ability to use IRAs to make certain types of real estate investments is also not included. Tax increases on corporations and wealthy Americans remain in play as an offset.
NMHC's Viewpoint: Timing and passage in the Senate remain uncertain. Check back to this page for updates in the coming weeks.

Learn More: This legislation’s potential impact on the industry go far beyond this particular tax incentive. Click through for a deep-dive from NMHC staff on the various other provisions that are included and how they could impact your business: https://www.nmhc.org/news/nmhc-news/2021/nmhc-analysis-how-will-president-bidens-build-back-better-framework-offsets-impact-the-multifamily-industry/

Sept. 17, 2021

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Ways & Means Advances Reconciliation Legislation that Includes Energy Efficient Commercial Buildings Deduction Changes

The House Ways and Means Committee completed consideration of reconciliation legislation that includes several provisions of interest to the industry—including a number focused on energy efficient incentives.

Additionally, taxpayers would be able to take a deduction for energy efficient lighting, HVAC and building envelope costs placed in service as part of a retrofit.

What This Means: Beginning in 2022, the base credit for buildings with four or more stories that exceed 25 percent of ASHRAE standards in effect three years before a building is placed into service would be $0.50 per square foot for energy savings. It would increase by $0.02 per square foot for every percentage point by which energy savings exceed the 25 percent baseline threshold, up to $1.00 per square foot. Bonus amounts, as described above, are available for taxpayers meeting applicable labor requirements.
Industry Impact: While these changes take positive steps to enhance this tax incentive, the legislation also includes a number of pay-fors that could negatively impact the industry. Specifically, it would raise ordinary income, capital gains and carried interest tax rates. It is important to remember that these proposals are just one step in a long process and subject to further change.
NMHC's Viewpoint: Although prospects for this bill’s passage in the Senate are murky, NMHC is working with lawmakers to ensure they are educated on the various pieces of this legislation that will impact the industry.

Learn More:

This legislation’s potential impact on the industry go far beyond this particular tax incentive. Click through for a deep-dive from NMHC staff on the various other provisions that are included and how they could impact your business: https://www.nmhc.org/news/nmhc-news/2021/ways-means-advances-tax-provisions-impacting-multifamily/

Matthew Berger mberger@nmhc.org