The green incentives were not all geared to vehicles. Several extensions and enhancements to real estate credits will be going into effect.
Commercial & Residential Credits for Solar and Other Renewable Sources
The 30% tax credit for adding solar panels, wind turbines or another renewable sources that has been available in recent years has been extended out through 2032 at the full 30% rate before phasing down in 2033 and 2034. It’s available on both commercial and residential properties including vacation homes, which is new.
Residential Energy Efficient Improvement Tax Credit
The Residential Energy Efficient Improvement tax credit that many taxpayers have taken advantage of in the past is getting significantly revamped in 2023. The $500 lifetime limitation that many taxpayers fully utilized long ago has been removed and replaced with an annual $1,200 credit. The credit is equal to 30% of the cost of the property and is subject to certain subcategory restrictions such as $500 for doors, $600 for windows, $600 for energy equipment, and $150 for home energy audits. Heat pumps and biomass stoves are a separate category of energy efficient improvements subject to a $2,000 limit.
Section 45L Energy Efficient Home Builders Credit
Many residential developers are familiar with the IRC section 45L New Energy Efficient Home Credit that has provided savings up to $2,000 per dwelling unit for energy efficiency in both single family and multi-family homes. Originally set to expire at the end of 2021, the credit has been extended through 2022 in its same form and then enhanced beginning in 2023 such that the per unit credit could be $2,500 or $5,000 depending on the level of efficiency.
Multifamily dwelling units could be eligible for a credit ranging from $500 to $5,000 depending upon energy efficiency savings and whether prevailing wage requirements are met.
Section 179D Energy Efficient Commercial Building Deduction
The Energy Efficient Commercial Buildings Deduction has also seen a myriad of changes, some favorable, some not. While the baseline energy savings target has been reduced from 50% to 25% in order to potentially receive the deduction, so too has the base amount per square foot - from $1.88 to $.50 per square foot. The amount per square foot would increase in $.02 increments to a maximum of $1.00 per square foot for each percentage point increase between 25% and 50%.
If the building owner or designer meets a prevailing wage requirement and an apprenticeship requirement, the deduction could increase all the way to $5 per square foot if there is 50% energy savings ($2.50 with 25% energy savings).
There are additional changes to the standard against which energy efficiency is measured, the lookback period, and the ability for all tax-exempt entities, not just government entities, to allocate credits to the building designer.
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