The Inflation Reduction Act (IRA) includes a wide range of tax credits designed to facilitate a transition to cleaner energy production and encourage the use of clean vehicles to reduce greenhouse gas emissions through the use of alternative fuels and energy-efficient technologies. While many of these credits have previously been only available to for-profit entities, the IRA created an opportunity for tax-exempt organizations to receive cash payments from the government when making investments in projects promoting clean energy and energy efficiency. Since the passage of the IRA, many tax-exempt organizations including state and local governments, tribal governments, not-for-profits, colleges and universities, healthcare organizations and others have been reviewing their potential investment in qualifying energy projects. This article will focus on what we have learned since the IRA was signed into law.
Organizations with a comprehensive plan will be better positioned to maximize these energy tax credits. From a high-level perspective, the following questions may assist in determining whether the IRA may benefit your tax-exempt organization:
- Are you considering a new construction project or renovations where you may be changing the use, consumption, energy efficiency or storage of energy?
- Are there deferred maintenance projects being contemplated?
- Does your organization have an environmental, social and governance (ESG) strategy driving future capital investments?
- Are you planning or currently executing a project to enhance heat or carbon capture, utilize wind, solar or hydro power, or harness biogas to make heat, electricity, or a transportation fuel?
Now is when tax-exempt organizations should be looking at deferred maintenance and other capital projects to determine whether the projects contain qualifying properties which may be eligible for the credit or could be adjusted to maximize the benefit. We have seen significant opportunities with solar projects, whether they are rooftop solar panels or larger offsite solar projects. Organizations investing in electric vehicles, electric vehicle charging stations or upgrading their energy systems, whether combined heat and power or other power generation, are also seeing opportunities. Replacing windows in buildings may also qualify for an energy credit.
Most of the IRA tax credits are available through 2032, but it is important to note that both current and future construction projects may be credit eligible since both the “begun construction” and placed in-service date is critical in determining whether the enhanced credit opportunity applies. It is necessary to carefully review the type of credit being claimed and the requirements specific to that credit.
