Inflation Reduction Act deadlines and considerations for engineers

When it comes to maximizing financial opportunities through the Inflation Reduction Act (IRA) for your engineering firm and its clients, the old adage rings true: “The best time to plant a tree was 20 years ago. The second best time is now.”

Though IRA funding qualification and disbursement is now in full swing, and though several important deadlines have already passed, there remains plenty of opportunity to maximize your clients’ benefit from the nearly $500 billion in available federal funding focused on clean energy and efficiency projects for state and local governments and other public sector entities.

With nearly 78% of IRA tax credits targeting environmental/energy projects—clean fuel and vehicle credits, clean electricity incentives, clean manufacturing, etc.—and with a long list of qualifying projects including wind, solar, hydro, biomass, combined heat and power, geothermal, carbon capture, electric vehicles, charging stations, renewable/low-carbon fuels and more, the question engineers should be asking is—what do I need to do, today, to help the governmental and public sector clients I serve take full advantage of the IRA?

In short, how do I plant that tree right now?

Project planning and prioritization

When it comes to helping your public sector clients maximize their IRA tax credits—especially direct pay tax credits tied to domestic content requirements—time is absolutely of the essence. As you evaluate their list of projects (past, present or future), it’s crucial to consider both the yearly decrease in tax credit percentages and the yearly increase in qualifying requirements. As an example, consider the changes to the domestic content requirements and benefits outlined below.

First, the qualifying benchmark of domestically manufactured products increases yearly, as follows:

• 40% for projects that begin construction before 2025
• 45% for projects that begin construction in 2025
• 50% for projects that begin construction in 2026
• 55% for projects that begin construction thereafter

Additionally, if the project fails to meet the domestic content requirements, the value of the domestic content tax credit will decrease each year for projects over 1 megawatt, as follows: