EPAct 179D and 45L have been part of the tax code since 2006. The Inflation Reduction Act of 2022 (IRA) was signed into law August 16, 2022. The Act includes several major updates to federal energy-efficiency tax incentives that may be of interest to Capstan clients. The following provisions take effect 1/1/2023, unless otherwise indicated.
EPAct 179D Tax Deduction
Created as part of the Energy Policy Act of 2005, the EPAct 179D tax deduction was made permanent by the Consolidated Appropriations Act of 2021 (CAA). The federal deduction may be applied to ground-up energy-efficient construction projects as well as to energy-efficient retrofits. 179D applies to all types of energy-efficient commercial buildings (EECB) and to residential rental buildings that are a minimum of four stories high.
Clauses in the IRA will increase and expand the utility of 179D as follows:
The Inflation Reduction Act (IRA), signed into law on August 16, 2022, includes tax provisions affecting businesses, individuals, the clean-energy industry, healthcare, and more. Let’s take a look:
Sec. 461(l) Business Loss Limitation. The pass-through tax deduction for small business owners (sole proprietorships, some limited liability companies, partnerships, and S-corporations) was enacted under tax reform (TCJA of 2017). The tax break limited individuals from taking more than $250,000 ($500,000 for married taxpayers filing jointly) of business losses to offset nonbusiness income. In effect for tax years 2021 through 2026, it has been extended through 2028.
Research Credit Against Payroll Taxes. For tax years beginning after December 31, 2022, the limitation amount increases by $250,000 to $500,000 for the Sec. 41(h) research credit against payroll tax for small businesses . The first $250,000 of the credit limitation will be applied against the FICA payroll tax liability. The second $250,000 of the limitation will be applied against the employer portion of Medicare payroll tax liability.