Tag: Clean Energy Tax Incentives

Monetizing Energy Credits: Roundtable Submits Recommendations to Treasury

Posted on by Trey Jackson
U.S. Capitol

The Real Estate Roundtable submitted comments today on proposed and temporary tax regulations regarding the transferability and direct payment of clean energy credits under the Inflation Reduction Act (IRA) of 2022. (Roundtable comments, July 28)

 IRA Incentives 

  • Congress passed the IRA last August. The law significantly increases the size of existing tax incentives for energy-saving improvements to commercial real estate. Perhaps even more importantly, the legislation contained key reforms related to the transferability and direct payment of energy tax credits.

  • The reforms have made the incentives relevant to a large and previously untapped segment of real estate owners, including REITs, pension funds, and private foundations. The incentives include:

    • Tax-exempt real estate owners that invest in solar panels and other improvements can elect to receive direct payments from the Treasury in lieu of the expanded investment tax credit.
    • Taxable real estate owners, including REITs, can sell the credits to third parties for cash. 
    • The credit amount can range from 6% to 60% of the qualifying investment, depending on factors such as the size, location, domestic content, and wages paid to equipment contractors.
  • Roundtable comments submitted last year included recommendations on the IRA’s transferability provisions. On June 14, the Treasury Department and IRS issued proposed regulations to implement the provisions, as well as temporary regulations establishing a pre-filing registration process.

  • The IRS rules adopted certain Roundtable recommendations, such as the ability to divide and sell the credits from a single project to multiple transferees. Other recommendations, which would have maximized the value of the credits in mixed real estate partnerships involving taxable and tax-exempt partners, were rejected as contrary to the statute and difficult to administer.  

Energy Credits Monetization  

U.S. Treasury Building
  • Today’s letter from Real Estate Roundtable President and CEO Jeffrey DeBoer commends Treasury for providing greater clarity on its credit monetization mechanism and for laying out a rational process and timeline for property owners to claim and transfer credits or receive payments.

  • The Roundtable’s July 28 letter—developed by a joint working group of the Roundtable’s Tax and Sustainability Policy Advisory Committees (TPAC and SPAC)—also encourages Treasury to revisit the issue of mixed partnerships and asks for clarification that the credits are not “bad assets” for purposes of the 75% REIT asset test.

  • The credit monetization tools enacted in the IRA offer valuable new opportunities to access and raise capital for energy-saving improvements to commercial real estate. The deadline for comments to Treasury and the IRS is August 14, and final Treasury regulations are expected this year.  

The Roundtable’s Energy Credit Transferability Working Group will remain engaged with policymakers as the rules are finalized and implementation continues. 

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Roundtable Comments on Clean Energy Tax Credits for Low-Income Communities, Housing

Posted on by Trey Jackson
Low-income housing development in New Jersey

The Real Estate Roundtable submitted comments today on a proposed rule from the IRS and Treasury Department regarding “bonus” tax credits for renewable energy investments in low-income communities, passed by Congress as part of the Inflation Reduction Act (IRA). (Roundtable Comment Letter, June 30) 

Solar, Wind Bonus Credits 

  • IRA Section 48(e) establishes a Low-Income Communities Bonus Credit Program to address climate, affordable housing, and environmental justice challenges. (Treasury news release, Feb. 13, 2023)

  • Taxpayers must apply to the IRS through a competitive process to receive any bonus credits under the Program.

  • The bonus can provide extra tax credits to help cover the costs of solar, wind, and storage facilities. See The Roundtable’s chart, “Base” and “Bonus Rate” Amounts Relevant to Commercial and Multifamily Buildings (May 25, 2023).

  • Taxpayers who qualify can layer an extra 10% bonus—above “base rate” credit amounts—for renewable projects in low-income communities defined in the IRA as census tracts that qualify for new markets tax credits.

  • The bonus can increase to an extra 20% for clean energy investments that are part of low-income rental housing—such as housing supported by LIHTCs or Section 8 “housing choice” vouchers. 

Roundtable Comments 

RER chart on Section 48(e)
  • Treasury and IRS proposed a rule on June 1 to implement the low-income bonus program. Today’s comments from The Roundtable seek greater clarity and certainty for building owners that may access the bonus credits, raising the following points:

    • The bonuses are available only for solar or wind projects that generate under 5 megawatts of electrical output. The Roundtable requested a more straightforward rule for what constitutes a “single project” for purposes of this output threshold.

    • The IRA’s text requires that multifamily building owners must share “financial benefits” of renewable energy produced on-site with tenants. The Roundtable’s comments stressed that any such benefits should not depend on utility bill savings that accrue directly to tenants—because owners cannot measure, track or control energy consumption in sub-metered leased units.

    • Low-income housing supported by non-federal programs through state- and local-level housing finance agencies or public housing authorities should also be eligible for the IRA’s low-income bonuses.

    • The proposed rule would offer a preference, not based in the statute, for non-profit owners to receive bonus credit allocations. The Roundtable’s comments urge there should be no bias against business taxpayers to receive the bonus to further the Biden administration’s climate policy goals for rapid deployment of renewable energy investments in low-income communities.  

  • Future Roundtable comments on IRA topics are in the works. Feedback on a proposed rule to buy-and-sell certain clean energy credits is due August 14. In addition, proposed rules to implement the 179D tax deduction for energy efficient retrofits of commercial buildings are expected this summer. 

Prior comments, information and summaries on The Roundtable’s advocacy efforts regarding clean energy tax incentives are available on our Inflation Reduction Act resources page and in Roundtable Weekly (Dec. 2, 2022 and Nov. 4, 2022).  

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House Republicans Advance Tax Package, Biden Administration Proposes Rules for Energy Tax Credits

Posted on by Trey Jackson

Republican members of the House Ways and Means Committee approved their proposed tax legislative package along party lines this week, including measures on business interest deductibility, bonus depreciation, and opportunity zones. (Tax Notes, June 14 | Ways and Means Committee, June 13 and Roundtable Weekly, June 9)

Tax Measures and CRE

Roundtable Chair John Fish with Jeffrey DeBoer and House Ways and Means Committee Chairman Jason Smith (R-MO)

  • On Wednesday, Ways and Means Committee Chairman Jason Smith (R-MO), Committee Member Brad Schneider (D-IL), and Ways and Means staff spoke with Roundtable Members about the tax measures and other issues at The Roundtable’s all-member Annual Meeting in Washington, DC during the Tax Policy Advisory Committee (TPAC) session. [Photo left to right: Roundtable Chair John Fish (Chairman and CEO, SUFFOLK), Roundtable President and CEO Jeffrey DeBoer, and Committee Chairman Jason Smith]
  • The three tax bills sent to the House floor for a potential vote next week contain $237 billion in business and individual tax cuts, financed by the repeal or modification of several energy tax incentives enacted in last year’s Inflation Reduction Act (IRA). However, differences in the GOP caucus and requests from some Republicans to include a boost in the $10,000 deduction cap on state and local taxes (SALT) could push a vote until after the congressional July 4 recess. Any Republican tax package passing the House would face significant opposition in the Democrat-controlled Senate and the White House. (Tax Notes, June 16)
  • The committee’s proposals relevant to real estate include:

House Ways and Means Committee

    • Business interest deduction. The Build It in America Act would provide a 4-year extension (through 2025) of certain, taxpayer-favorable business interest deductibility rules that applied from 2018-2021. The proposal would allow more real estate businesses to operate under the general rules of section 163(j) and its preferable cost recovery schedules. (H.R. 3938 and summary)
    • Bonus depreciation.  H.R. 3938 also includes a 3-year extension (through 2025) of 100% bonus depreciation for qualifying capital investments, including equipment, machinery, and interior improvements to nonresidential property (“qualified improvement property”).  Bonus depreciation is 80% in 2023 and gradually phasing down. 
    • Opportunity Zones. The Small Business Jobs Act would establish special, favorable rules for investments in rural opportunity zones. It would also create a new and detailed information-reporting regime for all opportunity funds. (H.R. 3937 and summary)

Energy Tax Credits Transferability

Chicago evening

  • The Biden administration this week proposed rules on transferring clean-energy tax credits under the IRA. Treasury’s proposed guidance released on June 14 seeks to clarify numerous issues, including which entities would be eligible for each credit monetization mechanism, laying out the process and timeline to claim and receive an elective payment, and transferring a credit. (Tax Notes, June 15 |The Wall Street Journal, June 14 | IRS news release)
  • Secretary of the Treasury Janet Yellen stated, “The Inflation Reduction Act’s new tools to access clean energy tax credits are a catalyst for meeting President Biden’s historic economic and climate goals. They will act as a force multiplier, bringing governments and nonprofits to the table.” (CNBC and Treasury news release, June 14)
  • The Roundtable’s Tax Policy Advisory Committee (TPAC) and Sustainability Tax Policy Committee (SPAC) will analyze the impact of the transferability rules on commercial real estate for potential comments on the proposed rulemaking. SPAC’s meeting on Wednesday during The Roundtable’s Annual Meeting included a presentation about an online marketplace for exchanging such tax credits.

Climate Disclosure RegsSEC logo - image

  • Separately, the Securities and Exchange Commission (SEC) expects to issue new climate disclosure rules by October, a year later than the original target date. The new date was included in a SEC rule-making agenda and schedule released on Tuesday.
  • Legislation to constrain future SEC disclosure requirements was reintroduced this week by Sen. Mike Rounds (R-SD) and nine of his Senate colleagues. The bill includes language stating that an “issuer is only required to disclose information in response to disclosure obligation adopted by the Commission to the extent the issuer has determined that such information is important with respect to a voting or investment decision regarding such issuer.” Rep. Bill Huizenga (R-MI) is sponsoring a version of the bill in the House. (Sen. Rounds news release and Politico Pro, June 15)

The Roundtable’s SPAC will continue to track any developments related to the SEC’s forthcoming rule on climate reporting, including its proposal for sweeping disclosures on Scope 3 GHG emissions affecting CRE. (Roundtable Weekly, March 10) 

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Treasury Issues Labor Guidance on Clean Energy Incentives; Roundtable Comments on EV Charging Station Credit

Posted on by Trey Jackson

The Treasury Department on Wednesday released initial guidance on labor standards for companies to qualify for increased incentives in the Inflation Reduction Act (IRA), passed by Congress in August. (Federal Register, Nov. 30 | CNBC, Nov. 29 | Roundtable Weekly, Aug. 12)

Wage, Apprenticeship Guidance

  • The IRA allows certain clean energy projects to qualify for “bonus” tax incentives (five-times “base” rates) if they meet prevailing wage and apprenticeship requirements.
  • This “bonus” rate structure applies to commercial installations of solar panels and other clean energy technologies (Section 48 credit), EV charging stations (Section 30C credit), and energy efficient building equipment (Section 179D deduction).
  • Treasury’s guidance directs taxpayers and their contractors to the federal government’s sam.gov website to search for geographically-appropriate wage determinations for construction jobs relevant to the IRA’s clean energy projects. If no labor classification for the planned work is available, a prevailing wage determination can be requested from IRAprevailingwage@dol.gov.
  • The guidance also explains that certain percentages of “labor hours” on a qualifying clean energy project must generally be performed by apprentices from registered programs. (Treasury FAQs on prevailing wage and apprenticeships, Nov. 29)
  • The guidance takes effect for qualifying projects that start construction on or after January 29, 2023.  See Treasury Notice and news release.
  • The Real Estate Roundtable addressed labor and other IRA issues in comments submitted Nov. 4 to Treasury and the Internal Revenue Service (IRS). [Roundtable Weekly, Nov. 4 and Oct. 7 | Roundtable IRA Fact Sheet, Sept. 20].

EV Charging Stations 

  • The Real Estate Roundtable submitted separate comments today to Treasury and IRS on the Section 30C tax credit for EV charging stations—or “Alternative Fuel Vehicle Refueling Property” as amended by the Inflation Reduction Act (IRA).
  • The Roundtable comments urge the IRS to issue guidance to clarify the components of EV charging property that qualify for the credit, the geographic areas that are 30C-eligible, and depreciation matters.
  • According to the Wall Street Journal, “Budget estimators expect around $1.7 billion in tax credits for chargers or other alternative-fuel equipment to be claimed over a 10-year period.” (WSJ, Nov. 29)

Treasury’s guidance on the IRA’s clean energy tax incentives and will be among the issues discussed during The Roundtable’s Jan. 24-25, 2023 State of the Industry and Policy Advisory Committee meetings in Washington, DC. 

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Roundtable Submits Comments to IRS on New Clean Energy Tax Incentives

Posted on by Trey Jackson

The Real Estate Roundtable submitted extensive comments to Treasury and the Internal Revenue Service (IRS) today that address various clean energy tax incentives in the Inflation Reduction Act (IRA) passed by Congress in August. [Nov. 4 letter and Roundtable Weekly, Aug. 12]

Need for Clarifications

  • The Roundtable’s comments are in response to recent IRS notices on a host of issues affecting CRE. [Roundtable Weekly, Oct. 7 and Roundtable Fact Sheet, Sept. 20]. The letter requests further guidance and clarifications that would:
    • Allow businesses to “layer” multiple credits and deductions on the same buildings;
    • Support building retrofits that contemplate an asset’s “conversion,” such as from multifamily to office, within the revised building efficiency incentive under Section 179D;
    • Maximize installations of solar, wind, and other technologies to feed renewable power to buildings onsite—while also allowing property owners to “sell” excess generation back to the grid;
    • Optimize clean power deployment in low-income housing and economically distressed areas;
    • Offer a “safe harbor” for employers seeking the IRA’s credit boosts when they pay prevailing wages to laborers and mechanics involved in energy project construction and installation; and
    • Capitalize on changes to the tax code that would allow REITs, partnerships, and other businesses to “transfer” certain clean energy credits to third parties.

Roundtable Advocacy

  • Roundtable President and CEO Jeffrey DeBoer stated, “The Roundtable’s comments to policymakers will help ensure that the Inflation Reduction Act spurs new investments in clean energy and climate-saving measures that benefit our industry and our country.”
  • The Roundtable letter was developed with input from its Sustainability and Tax Policy Advisory Committees. Treasury and the IRS are expected to start issuing implementing guidance before the end of the year.
  • Roundtable Board Member and Sustainability Policy Advisory Committee Chair Tony Malkin, center in photo above, (Chairman, President, and CEO, Empire State Realty Trust, Inc.) led a panel discussion in September with Roundtable staff on how the IRA’s “clean energy” tax incentives impact CRE. [Watch the discussion].

IRA incentives were discussed this week during a Blackstone ESG Summit panel featuring former Vice Chair of The Roundtable’s Sustainability Committee, Dan Egan (BX’s Americas Head of Real Estate ESG) and Duane Desiderio, Roundtable Senior Vice President and Counsel.

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Yellen, House Committee Promote Inflation Reduction Act Climate Investments; CRE Webinars Focus on New Tax Incentives

Posted on by Trey Jackson

Incentives in the Inflation Reduction Act (IRA) will accelerate private sector investment in clean energy technologies, according to remarks this week from Treasury Secretary Janet Yellen, above. (Yellen’s remarks, Sept. 27) 

  • Yellen announced that Treasury will host “a series of roundtable discussions to help inform our efficient and effective implementation of the tax credits.” (Barron’s and AFP News, Sept. 27)
     
  • A House Committee yesterday considered how the IRA’s climate investments will lower families’ utility bills, create jobs, and expand U.S. manufacturing of green tech and electric vehicles. (Video of Congressional hearing)

  • Several of the IRA’s revisions to the federal tax code can help the U.S. real estate sector reduce GHG emissions. Roundtable fact sheets detail the IRA’s Clean Energy Tax Incentives (Sept. 20) and Revenue Provisions (Aug. 17)

Industry Education on the IRA

Duane Desiderio, Tony Malkin, and Ryan McCormick
  • Roundtable Senior Vice Presidents Ryan McCormick (tax counsel), right, and Duane Desiderio, left, (energy counsel) recently participated in a number of panel discussions on how the IRA’s tax credits and deductions can spur energy efficiency and renewable energy projects in buildings. (Roundtable’s IRA fact sheet)
     
  • McCormick participated in a Sept. 27 Engineered Tax Services webinar. (Powerpoint slides) 
  • Desiderio participated in a Sept. 27 CBRE podcast moderated by Co-Chair of The Roundtable’s Research Committee, Spencer Levy (Senior Economic Advisor, CBRE) (Podcast transcript).
  • Desiderio also participated in a Sept. 28 briefing hosted by the Urban Land Institute (ULI) featuring members of The Roundtable’s Sustainability Policy Advisory Committee (SPAC)­­ – Immediate Past Vice Chair Dan Egan (Managing Director, Real Estate ESG – Americas, Blackstone), Suzanne Fallender (VP Global ESG, Prologis), and ULI EVP Billy Grayson.

The Treasury Department is expected to issue multiple regulations and guidance documents in the coming months to implement the new law. The Roundtable plans to submit comments as the new rules are proposed to help accelerate industry investments in tackling the climate crisis. 

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