The Inflation Reduction Act’s Impact on Sections 45L and 179d

The Inflation Reduction Act of 2022 (the Act) contains $433 billion in new spending over the next decade in areas such as:

The Act also includes a 15-percent minimum tax on corporate book income, $124 billion for IRS audits of high-income taxpayers, and closing the carried-interest loophole.

But what does it mean for companies like yours? Here are some highlights.

Please reach out to MHCS for more information regarding your specific concern.

Section 45L Update Summary

The Inflation Reduction Act includes $369.75 billion in Energy Security and Climate Change programs over the next ten years, through December 31, 2032. Specifically:

For manufacturing facilities (view the summary) there is a $10 billion investment tax credit for things like electric vehicles, wind turbines, and solar panels. Plus, a $30 billion production tax credits to accelerate domestic manufacturing of solar panels, wind turbines, batteries and critical minerals processing. Then there’s the $20 billion loan program to build new clean vehicle manufacturing facilities across the U.S. Finally, a $2 billion incentive to revamp existing auto plants to make clean vehicles.”

Section 179d Update Summary

The effective date for the following changes to Section 179d for large buildings are for tax years beginning after December 31, 2022, and include:

  1. The amount a taxpayer can deduct up front is the lesser of either (1) the cost of the retrofit or (2) the result of a complex formula built around an efficiency engineering standard, ASHRAE Standard 90.1.
  2. A new construction/addition projects deduction increase to $2.50 – 5.00/sq ft for 25%-50% energy savings that meet new prevailing wage and apprenticeship requirements. (An increase of $0.10 in deduction per percentage increase from 25% to 50%.)
    1. Otherwise, it is the deduction of $0.50 – 1.00/sq ft for 25%-50% energy savings. (An increase of $0.02 per percentage point.)
  3. Inflation adjustment restarts in 2023.
  4. No more partial deduction or interim lighting deduction
  5. Partial qualifications will be replaced with a new subsection “Alternative Deduction for Energy Efficient Building Retrofit Property,” incorporating:
    1. Qualified retrofit effective date is for property placed into service after 12/31/2022 under a retrofit plan established after 12/31/2022.
  6. Alternative deductions for qualified retrofits of buildings in service at least five years
  7. A retrofit plan (similar to an ASHRAE Level II Audit) is prepared by a licensed architect or engineer prior to improvements being made.

The best way to claim these deductions is to work with our tax professionals to help maximize your deductions. Give us a call.

Other Considerations

In addition to the above, the Act also incorporates:

We are keeping an eye on this developing story and will share updates as they come to light. In the meantime, please reach out to us for specifics about how the Inflation Reduction Act could impact your business.