Blog written by Eide Bailly, a Greater Mankato Growth Bronze Investor.

A version of this article first appeared on EideBailly.com.

The Inflation Reduction Act (IRA) of 2022 significantly enhances various energy efficiency tax credits and deductions, including the Renewable Electricity Production Credit (Section 45), Commercial Clean Vehicle Credit (Section 45W), Advanced Manufacturing Production Credit (Section 45X), Energy Investment Credit (Section 48), Qualifying Advanced Energy Project Credit (Section 48C), New Energy Efficient Home Credit (Section 45L), and Energy Efficient Commercial Buildings Deduction (Section 179D).

Here are the key highlights for these energy incentives:

• Renewable Electricity Production Tax Credit (Section 45): Section 45 provides a credit per kilowatt-hour for electricity produced by specific renewable sources. The IRA introduces new rules for large energy systems over 1 megawatt, with increased credit amounts based on domestic materials and project location within an “energy community.” Direct pay option added for tax-exempt entities. Smaller projects (under 1 megawatt) qualify if construction begins between January 1, 2022, and December 31, 2024. Larger projects have a construction window from January 30, 2023, until January 1, 2025.
• New Energy Efficient Home Credit (Section 45L): Section 45L provides a credit of up to $2,000 per unit for properties placed in service prior to January 1, 2023, and up to $5,000 per unit for projects placed in service between January 1, 2023, and December 31, 2032. The IRA extends the credit at the current rate of $2,000 per unit for certain properties. Increases values for Section 179D and Section 45L through the end of 2032. Introduces additional credits for projects meeting wage, apprenticeship, and ENERGY STAR/ZERH program requirements. For qualifying projects placed in service after January 1, 2023, various credit amounts are applicable based on project type and requirements.
• Commercial Clean Vehicle Credit (Section 45W): Starting January 1, 2023, Section 45W provides a tax credit for buyers of environmentally friendly commercial vehicles. Eligible vehicles must be intended for use on public roads or mobile machinery and purchased between 2023 and 2032.
• Advanced Manufacturing Production Credit (Section 45X): A Section 45X is a tax credit for U.S.-made wind, solar, battery power components, and critical minerals, applicable each year to eligible components and minerals produced and sold after December 31, 2022. Components must be produced and sold in the taxpayer’s trade or business. Credit decreases gradually starting from January 1, 2030.
• Clean Energy Investment Tax Credit (Section 48): Section 48 is an Investment Tax Credit for clean energy property, covering various energy technologies. The IRA modifies credit provisions for solar energy property and qualified geothermal energy property.
• Qualifying Advanced Energy Project Credit (Section 48C): Initially established in 2009, this credit now allows an additional $10 billion in credits, with specific allocations for projects related to coal mine closures.
• Energy Efficient Commercial Buildings Deduction (Section 179D): A deduction for energy-efficient commercial buildings, applicable up to $1.88 per square foot. Starting in 2023, introduces a base deduction rate and a bonus deduction for projects meeting certain requirements. Applicable to projects placed in service after January 1, 2023, with a three-year cap on using the deduction.

Navigating a New Era of Energy-Conscious Practices

Tax credits and deductions exist to help you save money and promote a clean green energy infrastructure. These incentives are available for the next 10 years and allow for proactive planning, including:

• Accounting and tax departments incorporating these incentives into their Capitalization Policy and Fixed Asset Ledgers.
• Environmental, Sustainability and Governance (ESG) officers to fund and advance their organization’s goals.
• Developers, owners, contractors, and architects including these incentives during design and construction.

Working alongside an experienced team of advisors with a proven track record in the energy efficiency space will help you maximize these new opportunities.

Eide Bailly’s energy efficiency specialists and business advisors are here to evaluate your eligibility and collaboratively optimize the full potential of these energy-efficient incentives.