If you were among the owners fielding tired phone calls from your accountant last weekend, hoping they were calling to share happy news, you’re in good company.
The tax benefits are among the top reasons real estate is such a strong investment, especially when every available incentive is put to use. Now is the time to prepare, so your accountant has happy news to share when they call again next April.
Here are some new programs, as well as a few existing ones, to add to your toolkit.
New Benefits Under the Inflation Reduction Act of 2022
- Energy Efficiency Deduction: Starting in 2023, buildings that improve their energy efficiency by 25% are eligible for a federal deduction. That deduction grows for every additional 1% of efficiency improvement beyond the 25% minimum, capping at 30% of the total cost incurred on the energy efficiency improvements.
- Qualified Retrofit Plan Requirement: To meet the standard, a building needs a written retrofit plan prepared by a qualified professional specifying modifications expected to reduce the building’s energy use intensity by 25% or more compared to its baseline.
- Construction Deductions: Certain construction projects in 2023 may be eligible for federal deductions as large as $5.00 per square foot if they meet the prevailing wage rate and minimum apprenticeship requirements for the area where they’re building.
The Low-Income Housing Tax Credit (LIHTC)
The LIHTC is a nonrefundable federal tax credit for the construction or rehabilitation of housing that has an income requirement for its tenants. In most cases, this requires the cost of housing (rent and utilities) to be lower than 30% of a tenant’s adjusted gross income, though other affordability requirements can apply depending on the development or rehabilitation project.
Every state and county defines “low income” differently, so do your research. Most of the tax credits provided by LIHTC are redeemable every year for up to 10 years, though this varies by situation. After completing your application through your state’s authority, your project needs to fall under one of the “Set-Asides” requirements, which can be seen on IRS Form 8609.
The PA Housing Options Grant Program
A $100 million plan was recently approved for grants toward the construction, rehabilitation, and repair of affordable housing in PA. All projects must abide by rent and income requirements, and developers must have matching funds of at least 25% of the grant.
Grants are to be awarded by December 2024 and must be used by December 2026. The funds are intended mainly for low-income housing that hasn’t already received tax credits or doesn’t intend to receive them over the next four years.
New Electric Vehicle Charging Station Tax Credits
As more EVs hit the road, the government is offering tax credits to owners who install chargers on their properties. Businesses — including multifamily properties — and home installations of EV charging stations can see up to a 30% tax incentive for the total cost of equipment and installation. If you’re looking for a way to renovate and modernize your multifamily complex, an EV charging station might be a good place to start.
- PA Level 2 Charging Stations: 50% to 80% of the total project cost, or $3,000–$4,000 per plug, whichever is less (must be installed for public use; workplaces and multifamily complexes are exceptions).
- PA Fast Chargers (DCFCs): 65% of the total project cost, up to $250,000 per project (must be installed for public use).
- Federal Alternative Fuel Vehicle Refueling Property Tax Credit: Offsets up to 30% of EV charging station purchase and installation costs, up to $30,000 for residential and up to $100,000 for commercial installations after 2022.
Conclusion
Use these strategies to improve the performance of your assets while benefiting your residents. For further information on these tax incentive programs, please consult your qualified tax professional.
