{"id":208006,"date":"2024-02-01T11:00:52","date_gmt":"2024-02-01T16:00:52","guid":{"rendered":"https:\/\/www.constructionspecifier.com\/?p=208006"},"modified":"2024-02-01T13:47:52","modified_gmt":"2024-02-01T18:47:52","slug":"shedding-light-on-types-of-federal-funds-and-energy-upgrades","status":"publish","type":"post","link":"https:\/\/www.constructionspecifier.com\/shedding-light-on-types-of-federal-funds-and-energy-upgrades\/","title":{"rendered":"Shedding light on types of federal funds and energy upgrades"},"content":{"rendered":"
\"Carrier<\/a>
Carrier Behavioral Health at Raritan Bay Medical Center, which utilized Kenall Manufacturing’s lighting fixtures.<\/span> Photos courtesy Kenall Manufacturing. <\/em><\/span><\/figcaption><\/figure>\n

By Nate Heiking<\/strong><\/p>\n

The Inflation Reduction Act (IRA)<\/em> and the Infrastructure Investment Jobs Act (IIJA)<\/em> are two federal laws that present tremendous opportunities for implementing energy-efficient upgrades, such as new interior lighting systems. However, given the intricacies of these laws, understanding how businesses can counsel clients to take advantage of them for their next project may be daunting. The beginning of the new year is the perfect time to break down the details of the laws\u2014as they pertain to both tax-exempt and for-profit organizations\u2014and review what projects qualify, examine funding sources, and determine the next steps.<\/p>\n

Understanding IRA<\/em> and IIJA<\/em><\/strong><\/p>\n

The IRA<\/em> directs nearly $400 billion in federal funding to clean energy, with the goal of substantially lowering the nation\u2019s carbon emissions by the end of this decade. The funds will be delivered through a mix of tax incentives, grants, and loan guarantees.<\/p>\n

The IRA<\/em> plays a significant role, one of them being that it opens up investment and development opportunities driven by tax credits for tax-exempt organizations, such as local governments, higher education institutions, and hospitals, which were previously unavailable prior to this bill being passed. Before, tax credits were generally only applicable to entities such as for-profit corporations that had taxable income to offset. The IRA<\/em> solves this problem with a new approach to tax credit incentives, which is a game-changer for tax-exempt entities because the law includes a new direct pay provision that allows tax-exempt entities to monetize applicable tax credits. Exempt organizations can now treat earned tax credits as an \u201coverpayment of taxes\u201d and receive a direct payment from the U.S. Treasury as a tax refund.<\/p>\n

For tax-exempt entities, the IRA<\/em> direct-pay option alleviates a long-time obstacle to participating in climate-friendly activities encouraged by these credits. Before the IRA<\/em>\u2019s direct-pay option, it was more expensive for tax-exempt organizations to take advantage of energy-saving technologies than for-profit taxpayers because tax-exempt organizations generally have little or no tax to offset against tax credits.<\/p>\n

Specifically for tax-exempt organizations, the IIJA<\/em> is another equally significant law that provides $550 billion in federal spending allocated over the next four years. The historic investments include projects ranging from clean energy to broadband and would significantly reframe the future of infrastructure in the U.S., while supporting schools and tax-exempt organizations to make critical energy upgrades. Funding for IIJA<\/em> is through grants and loans, some examples are included in this article.<\/p>\n

<\/p>\n

\"Expanded<\/a>
Projects such as Hackensack Meridian Health\u2019s new, expanded Carrier Behavioral Health at Raritan Bay Medical Center, which opened in September 2023, and includes luminaires specifically designed to withstand abuse, while still providing maximum lumen output.<\/span><\/figcaption><\/figure>\n

Project eligibility and tax incentives<\/strong><\/p>\n

Both businesses and tax-exempt organizations can now benefit from Section 179D, Energy Efficient Commercial Buildings Tax Deduction<\/em>1<\/sup> for energy efficient projects. In addition to using Section 179D deductions, companies can use tax credits for upgrades or construction projects. Specifically, Section 148, Investment Tax Credit (ITC)<\/em> allows building owners to use the tax credit against their own tax liability. In most cases, the credits now carry back three years and forward 20 years. If the owner(s) does not have tax liability or taxable income, then certain credits may be sold to another taxpayer. This concept is known as transferability.<\/p>\n

The IRA<\/em> established a new elective retrofit program as an alternative deduction for energy-efficient building retrofits, which is taken in the qualifying final certification year. The alternative deduction requires a qualified retrofit plan and is focused on energy use intensity rather than total annual energy and power costs. The alternative deduction cannot exceed the aggregate adjusted basis of retrofit property placed in service.<\/p>\n

Most of the IRA<\/em> tax credits are available through 2032,2<\/sup> but it is important to note that both current and future construction projects may be credit eligible. The date construction begins and the date the property is ultimately placed in service are both critical in determining whether the project is eligible for enhanced credit opportunities. It is necessary to carefully review the type of credit being claimed and the requirements specific to that credit.<\/p>\n

If clients are considering renovations or new construction projects, both qualify for the 179D deduction. Additions such as a school\u2019s new library or a hospital\u2019s new wing qualify based on the efficiency of only the addition, not the efficiency of the entire\/existing structure. The IRA <\/em>changes to 179D removed the partial deduction related to the separate systems, so the deduction is always based on the efficiency of the project as a whole.<\/p>\n

Buildings that increase their energy efficiency by at least 25 percent will be able to claim this deduction, with bonuses for higher efficiency improvements. The higher level of incentive for large savings is designed to encourage projects that are \u201czero energy ready.\u201d In addition, owners can earn 179D benefits every three to four years, if a new capital event has led to additional reductions in the building\u2019s carbon footprint.<\/p>\n

Qualifying lighting upgrades<\/strong><\/p>\n

Improving a building\u2019s energy efficiency creates long-term savings that go straight to the bottom line; however, the upgrades can sometimes be costly. Now, with the passage of the IRA<\/em>, commercial real estate property owners and designers have additional incentives available when making energy-efficient improvements. While there are inherent savings to upgrading interior lighting from legacy metal halide fixtures to new, energy-efficient LEDs\u2014more than 60 percent in energy consumption, reduced maintenance costs, and overall lower heat in the facility\u2014the rebates and incentives from the IRA<\/em> and Section 179D tax code offer even more reasons to move forward with these projects.3<\/sup><\/p>\n

<\/p>\n

\"Projects<\/a>
Projects such as the new LED luminaires featuring visible light disinfection technology in UMass\u2019 Boyden Gym locker room could qualify for funding. These luminaires not only illuminate the space but simultaneously kill harmful germs.<\/span><\/figcaption><\/figure>\n

The types of qualifying buildings:<\/p>\n