How is Inflation Reduction Act 2022 Impacting Commercial Real Estate?

The world today is becoming a lot more conscious. It is now an excellent time for climate legislation. You must know there are a lot of laws and changes brought in the real estate industry to help the future generation and the environment.

The Inflation Reduction Act was first enacted on August 16, 2022. This marked a significant step towards the largest climate investment that has been made in the history of the US. The IRRA has unlocked $369 billion of federal funding for the energy and climate provision.

This sets the US on the path to reducing greenhouse gas emissions by up to 40%, bringing them down below 2005 levels in the coming seven years.

The climate provision now focuses on reducing consumer energy costs and bringing in better investment and cleaner energy to support energy security investments, environmental justice, and advancing resilient efforts in rural communities and postal habitats.

The impact of the bill cannot be overstated. It has been done to entirely set a new course for the industry and the country. This further brings in the required momentum and optimism for taking action toward climate change.

The bill has significantly impacted the CRE and the construction, mainly by expanding the tax credits and extension. This will include embodied carbon through energy-efficient commercial buildings, low-carbon material support, rebates for energy-saving projects, grants from local and state governments for maintaining the energy coal, incentives for electric vehicles, clean electricity, and a lot more.

Real estate developers are using the available opportunities and benefitting them. They understand the importance of tax benefits. They are often the factor that will make or break the project.

So besides simply paying back the analysis, it is vital to incorporate regulatory measures for tax credits throughout the energy model. This is precisely what you will be getting to know from the details.

Here is a quick guide for those working in the CRE industry to know about the new law and how it will impact the industry.

1. Embodied carbon

• It is vital to know that about $250 million of funding has been allocated to develop and standardize environmental product declaration. This has been done for construction materials with grants and technical support from the manufacturers.
• $100 million has been allocated for identifying and labeling the low-carbon materials or the products that can be used for federally funded transportation or building constructions.

It is undoubtedly a major step that will help reduce the use of those items that can take a toll on the environment or result in huge CO2 emissions.

2. Commercial buildings

• Based on the situation, there will be tax deductions for energy-efficient commercial buildings, like an expanded incentive for ten years. This will be done by increasing $1.80 per square foot to $2. 50- $5.00 per square foot. Besides, there will be new eligibility for REITs to assess the deductions.
• Also, $1 billion has been allocated for grants to help the local and state governments implement and adopt the building energy codes. Herein $330 million has been split for meeting 2021 IECC or IED/ANSI/ASHRAE 90.1-2019 and has been allocated for exceeding or meeting the zero energy provisions in the 2021 IECC or any stretch code.

Building owners bringing energy efficiency to the property will be able to make the most of the tax-saving benefits. The government is doing it all to encourage people to do everything that will work better for the environment and help reduce pollution.

3. Large multifamily residential buildings

• All large residential multifamily buildings will be eligible for a credit of about $2500 per unit when they meet the ENERGY STAR. While the benefit for the same will increase to $5000 per unit for meeting the DOE zero energy ready.

The amount has been expanded from the past law, which will limit the multifamily buildings to three stories or less. The update here will make the credit accessible for all the multifamily buildings to a significant amount with established wage requirements.

• The law states that about 30% of the credit is for eligible expenditures that are done on-site, like solar water heating, residential solar electric, fuel cell, geothermal heat pumps, or small wind energy, through the end of 2032.

This exciting credit will surely expand all properties, including battery storage. However, the credit will be reduced to 26% in 2033 and 22% in 2034. Finally, it will expire by the end of 234.

4. Public buildings

• It has been stated that about $250 million will be allocated to the US general service administration. This will be available to them from 2022 to 2031 to convert federal buildings to high-performance buildings.
• Besides there is an amount of $975 million will be allocated to the GSA that is to be spent through 2026. This can be done on emerging and sustainable technology that will include funding GSA’s green proving ground program that majorly focuses on driving down operational costs through new technology.

5. Clean energy

• There has been a significant extension and expansion of the investment tax credit production tax credit that has been used for renewable energy projects. These incentives will be replaced for the construction projects right from the start of 2024 by new technology-neutral incentives focused on emission reduction.

A $10 billion investment tax credit has been meant to fund the construction of clean technology manufacturing facilities. This will include producing electric vehicles, wind turbines, solar panels, and much more.

• $40 billion is allocated until 2026 for loans from the DOE Loan Programs Office. This is aimed at supporting the commercial implementation of innovative clean energy technology.
• There is also an electric vehicle incentive that includes expansion of 30d clean vehicle tax incentive through 2032 for about $7500 tax credit on the purchase of qualifying clean vehicles as well as a new tax credit of up to $4000 for qualifying used clean commercial vehicles. Also, there will be a new tax credit for clean commercial vehicles.

This has been quite encouraging for the business owners and the local public to use green and clean resources to enjoy all the benefits. With time the incentive will receive great popularity. This will work towards the betterment of the environment while ensuring people get to enjoy all of the cost-saving benefits.

6. GHG reduction fund

• Lastly there is about $11.97 billion is allocated for competitive brands. This has been done for all projects aiming to avoid or reduce greenhouse gas emissions.

The new bill is undoubtedly less robust than the Build Back Better legislation. But it surely is a huge step that will be working towards the environment, and it will provide an opportunity to leverage new resources for reaching the target emission deadlines.

Besides, it will also work well for improving the performance of the buildings and bringing in energy efficiency. The expanded tax credits in the IRA will make considerable investments in high-performance, sustainable buildings and be even more cost-effective. As the businesses race to stand out to ESG-focused investors and employees.

This is the best time for them to embed sustainability in their portfolios. After all, this will attract people to choose their property over the others.

The Inflation Reduction Act includes federal money, but additional funding is also from the local, state, and utility levels.

There is an unprecedented increase in funding available for CRE professionals looking to reduce energy. Research here will be essential to understand the essentials and know what will work well for qualifying for the new bill.

This will help save some money while also upgrading the properties, so there will be an overall benefit. In addition, research and analysis will be beneficial regardless of the type of property you are involved. Thus, it would help if you took proper measures to understand things well.

Conclusion

The new law has brought a significant change in the industry. In addition, it is undoubtedly helping people save some money on the tax and get the required funding to make their buildings more energy efficient.

This new incentive from the government will surely bring a significant change and make the world a better place. First, you must know the eligibility criteria for getting the most out of the new bill.

If you are unaware or need professional support, consider trusting Private Capital Investors. They have got experts who will make the experience easy. So whether you need basic help or want professional advice, the experts will be there to ease the experience for you.