Oct 17, 2022
The Inflation Reduction Act of 2022 (2022 IRA) was passed to incentivize investment in clean energy and promote the reduction of carbon emissions. A large share of the incentives come in the form of tax credits, which in some cases are extensions or expansions of current credits, such as those for electric vehicles or residential energy upgrades.
Of the tax provisions introduced by the 2022 IRA, one of the most significant to businesses has been the expansion of the Energy Efficient Commercial Buildings Deduction (§179D), which increases the maximum deduction and updates the eligibility requirements for a property’s reduction of energy costs, in addition to other changes.
Under the expanded provision, a deduction is allowed for all or part of the cost of certain energy-savings improvements made to domestic, commercial buildings placed in service as part of the building’s:
- interior lighting systems
- heating, cooling, ventilation (HVAC), and hot water systems
- building envelope
The tax deduction benefits both commercial building owners and lessees along with designers of government-owned buildings. Additionally, the provision states that installation of energy-efficient property may occur as a result of new construction, or through the improvement of an existing commercial or government building.
Efficiency standard: To qualify for the deduction, newly updated eligibility requirements call for energy-efficient property to reduce associated energy costs by 25% or more (decreased from 50% or more) in comparison to a reference building that meets the latest efficiency standards.
Applicable amount: The applicable dollar value of the deduction is $0.50 per square foot, an increase of $0.02 for each percentage point above 25% that a building’s total annual energy cost savings are increased. However the amount cannot be greater than $1/ square foot, and the maximum amount of the deduction in any tax year cannot exceed $1/ square foot minus the total deductions taken over the previous three years (or during a four-year period in cases where the deduction is allowable for someone other than the taxpayer). The applicable dollar value will be adjusted for inflation for tax years beginning after 2022.
An increased dollar value is available for projects that satisfy prevailing wage and apprenticeship requirements for the duration of the construction.
Alternative deduction for energy-efficient retrofit property. Under the 2022 Inflation Act, taxpayers may elect to take an alternative deduction for a qualified retrofit of any eligible property. However, instead of a reduction in total annual energy power costs, the deduction is based on the reduction of energy usage intensity.
For more information on how you may be able to take advantage of this deduction or any other tax relief provisions under the 2022 Inflation Act, contact William Vaughan Company’s team of trusted tax professionals.
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Categories: Tax Planning
May 11, 2020
On April 30, 2020, the IRS released Notice 2020-32 (the Notice) answering a major tax question involving the Paycheck Protection Program (PPP). It ruled that any deductible expenses that result in forgiveness of a PPP loan will not be deductible in computing the taxpayer’s income. This conclusion contradicts the language in the CARES Act (the Act) under Section 1106(i) which states the cancellation of indebtedness of a PPP loan, under the provisions of Section 1106(b), “shall be excluded from gross income” in computing the taxpayer’s taxable income.
The IRS points out in the Notice that while the Act provides that PPP loan forgiveness is not taxable income, no provisions of the Act address the ability to deduct eligible expenses paid from such loan proceeds.
Stay tuned! It is unlikely the end of this controversy. First, it is possible a taxpayer may decide to challenge this position in court. Whether they would or would not prevail is open to question, and the other big problem is being able to afford the litigation. The more likely scenario is that Congress would reverse the notice by simply enacting an amendment in the next Coronavirus bill (if there is one) to make clear expenses used to justify PPP loan forgiveness are deductible, regardless of any provision by the IRS.
Visit the WVC COVID-19 Resource Center for more insights by clicking here.
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