Is your tax-exempt organization working on major construction or renovations on your property? Or considering purchasing new energy-efficient cars for your organization? If so, there is some good news for you.
The Inflation Reduction Act of 2022 ("the Act"), signed by President Biden on August 16, 2022, includes a wide range of tax incentives for alternative energy and energy-efficient projects. The Act extends existing tax credits and adds new tax credits for a wide range of projects—everything from solar panel installation to electricity produced at zero-emission nuclear plants.
The Act also creates an opportunity for tax-exempt organizations to enjoy some of the tax benefits associated with these types of projects, which traditionally have not been as available to them. Prior to the Act, there was no way for tax-exempt organizations to take advantage of the tax deduction under Section 179D of the Internal Revenue Code for constructing new commercial buildings or renovating existing buildings with certain energy-efficient systems, as they generally had no taxable income to deduct against. However, the Act grants to tax-exempt organizations (including 501(c)(3), (c)(4), and (c)(6) organizations) the ability to allocate this deduction to the designer of the project. For tax-exempt organizations that are in the process of doing major renovations or constructing a new building, it may be worth looking into the Act more closely in order to negotiate a more favorable deal with your project designer in exchange for allocating this deduction to them. The Treasury Department will be providing guidance on how to make this allocation.
Additionally, the Act grants tax-exempt organizations the right to receive a direct cash payment instead of a tax credit for certain energy-efficient or alternative energy projects beginning in taxable years after 2022. If your tax-exempt organization is not in the process of building solar panels on your roof or perhaps developing a zero-emission nuclear power facility, take heart—some other tax credits may be more relevant to your organization. Specifically, tax-exempt organizations (other than certain farmers' cooperatives) can take advantage of a tax credit available for purchasing a qualified commercial clean vehicle (think electric car), which is capped at $7,500 for a vehicle that weighs less than 14,000 pounds and $40,000 for other vehicles. Tax-exempt organizations can also take advantage of a tax credit for installing an "alternative fuel vehicle refueling property" (think electric vehicle charging station) in a low-income or non-urban area.
The Treasury Department will be providing guidance on how tax-exempt organizations can take advantage of these tax benefits, so stay tuned.