IRA Energy Credit Updates
The Impact of Clean Energy on Affordable Housing
The Inflation Reduction Act (IRA) was signed into law on August 16, 2022. With a focus on climate change and clean energy over the next 10 years, this act includes opportunities for increased tax credits for affordable housing properties. The provisions encourage the use of energy efficient property, with some incentives specifically directed at low-income communities.
As part of the IRA, Internal Revenue Code (IRC) Section 48 extended the Renewable Energy Investment Tax Credit (ITC) and Renewable Energy Production Tax Credit (PTC) retroactively from January 1, 2022, for 10 years. The base credit is 6%, however the credit increases to 30% for properties that began construction on or after January 1, 2022, as long as the property (i) has a maximum output of 1 megawatt or less, (ii) meets prevailing wage and apprenticeship requirements, or (iii) began construction before January 28, 2023, which is 60 days after the IRS released the final prevailing wage and apprenticeship requirements.
Another notable change brought about by the IRA is that the low-income housing tax credit (LIHTC) eligible basis reduction, related to energy credit property, no longer exists for property placed in service after December 31, 2022. The properties may now qualify to claim LIHTC credits on the eligible basis attributable to the solar property.
In addition to these changes, potential additional bonuses have been established that can be stacked.
Energy Credit Bonuses Specific to Affordable Housing
The IRA offers a 10% bonus for using domestic materials on an ITC project. The domestic materials must make up at least 20%-55% of the project, which is dependent on the type of project and the construction start date. This bonus is in place to encourage developers to use materials from the U.S.
There is a 10% bonus for facilities located in energy communities. IRC Section 45(b)(11)(B) defines an energy community as a brownfield site; an area with considerable employment related to fossil fuels and has an unemployment rate at or above the national average unemployment rate for the previous year; or a census tract where either a coal mine shut down after December 31, 1999, or a coal-fired electric generating unit was retired after December 31, 2009, or which is directly adjoining such a census tract.
Specific to solar and wind facilities placed in service in connection with low-income communities, there is a 10% bonus if the property developed is located in a low-income community, as defined in the IRA, or a 20% bonus if the development is part of a qualified low-income residential building project or a qualified low-income economic benefit project.
McKonly & Asbury, LLP is a leader in accounting for affordable housing partnerships. Our team has the specialized knowledge to help you ensure you comply with IRS and tax credit allocating agency reporting requirements. For more information on these services and more be sure to visit our Affordable Housing page, and don’t hesitate to contact us.
The information presented in this post is intended solely for informational purposes and should not be construed as accounting advice from McKonly & Asbury, LLP.
About the Author
Alyssa joined McKonly & Asbury in 2017 and is currently a Manager with the firm. As a member of the firm’s Tax Segment, she provides a wide range of services to clients by performing tax returns for partnerships, corporations, individu… Read more
