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Inflation Reduction Act - Please Consult with your Tax Professional

Section 25D residential tax credit

The bill extends the credit for all Section 25D technologies at the following rates:

  • 30% (2022-2032)
  • 26% (2033)
  • 22% (2034)
  • 0% (2035)

The House-passed version of the bill made the credit fully refundable, subject to extensive verification requirements on installers to guard against fraud. These refundability and verification requirements have been removed.

For more information, please check with your tax professional.  This IRS FAQ Page is helpful

Section 48 commercial tax credit

Section 48 is extended under a two-tier structure:

  • A “base rate” of 6% (or 1/5 of the bonus rate)
  • A “bonus rate” of 30%

In order to receive the bonus rate, projects will have to either:

  • meet prevailing wage and apprenticeship requirements; or
  • be “a project with a maximum net output of less than 1 megawatt (as measured in alternating current) of electrical or thermal energy.”

Section 48 technologies will transition to a technology-neutral clean electricity production investment tax credit (i.e., the Wyden Tech Neutral bill), starting in 2025. However, geothermal heat pumps will continue to be eligible for the Section 48 credit through 2034 at the following rates:

  • 26% (2021) (base/bonus rate structure not applicable)
  • 30% bonus/6% base (2022-2032)
  • 26% bonus/5.2% (2033)
  • 22% bonus rate/4.4% (2034)

The House-passed version of the bill provided for direct pay/refundability of the credit. In this version, direct pay/refundability is only available under Section 48 for the following entities:

  • tax-exempt organizations;
  • state or local government (or political subdivision thereof);
  • Tennessee Valley Authority;
  • Indian tribal government; and
  • Alaskan Native Corporations.

The bill includes a domestic content bonus credit for facilities that use domestic steel, iron, and manufactured products. The bonus credit is two-tiered:

  • 10% (projects that either meet prevailing wage/apprenticeship requirements or are under 1MW of electrical or thermal energy)
  • 2% (projects over 1MW that don’t meet prevailing wage/apprenticeship requirements)

GSHP projects are eligible for both tax credits and EPAct 179D energy tax incentives. Specifically, the new and expanded commercial GSHP tax credits and other energy tax incentives should give the green industry fuel to further innovate, grow, and thrive. An excerpt from - Charles R. Goulding and Jacob Goldman – Green Energy Times

New and Expanded Ground-Source Heat Pump Tax Credits

“GSHP is one of the few energy efficiency measures that can qualify for both the:

  • $5.00 /s.f. (179D) tax incentive
  • and the 50% (commercial) tax credit

Since the inception of EPAct 179D in 2006, government building designers have always been eligible for tax incentives. Now, designers, including geo-specialists, HVAC design and build contractors, engineers, and architects can also earn 179D tax benefits for nonprofit projects. Including nonprofit hospitals, nonprofit universities and schools, museums, houses of worship and a myriad of other nonprofits now qualify.” Read their full article here Full article here.

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