The recently passed Inflation Reduction Act includes many green tax credits and incentives including several options for residential and commercial real estate. Here’s a look at what is available for real estate-related green energy tax credits.

Energy Efficiency Home Improvement Credit – Modified and Extended

Homeowners are eligible for a tax credit for certain energy efficiency improvements of residential homes. Generally, the credit is available to homeowners who are located in the United States and who own an existing home that is being improved or enlarged. The credit is not available for new homes. Qualified expenses are for new systems and materials such as building envelope components, certain HVAC equipment, heat pumps and more.

Residential Clean Energy Credits - Modified and Extended

This credit is available to both homeowners and renters for qualified expenses related to clean energy property including but not limited to solar electric panels, solar water heaters, geothermal heat pumps, etc. There are minimum requirements for the clean energy property. For example, solar water heaters must be certified by the Solar Rating & Certification Corporation.

New Energy Efficient Homes Credit – Retroactively Extended

Homebuilders can take advantage of the new energy efficient homes credit by building or substantially reconstructing qualified new energy efficient homes. The credit depends on several factors including the type of home, its energy efficiency and when the home is acquired.

For homes acquired in 2023 through 2032, the credit is up to $5,000 per home. Factors affecting the maximum credit are based on applicable program requirements such as Energy Star and the Zero Energy Ready Home program.

Energy Efficient Commercial Buildings Deduction – Modified and Extended

Owners and lessees of commercial buildings located in the U.S. are eligible to claim an enhanced tax deduction for depreciable improvements to property. Eligible energy efficient property improvements and retrofits include updates to interior lighting systems, heating, cooling, ventilation, and hot water systems, or the building envelope. Costs must be certified as part of a plan to reduce total annual energy and power costs for the related systems by 25% or more compared to a reference building meeting minimum requirements of Reference Standard 90.1.

Beginning in 2023, if local prevailing wages are paid and apprenticeship requirements are met, an increased maximum deduction is allowed. The tax credit is also available to designers of energy efficient commercial buildings owned by specific tax-exempt entities, including certain government entities, Indian tribal governments, Alaska Native Corporations and other tax-exempt organizations.

Wondering if you can benefit from these green energy tax credits? Contact us, we can help.