Inflation Reduction Act Benefits Affordable and Low-Income Housing Developers

AAFCPAs would like to make real estate clients aware of important credits and incentives defined in the Inflation Reduction Act (IRA).

One of the key takeaways of the IRA for real estate developers in the renewable energy sector is the 10-year extension of the Investment Tax Credit (ITC) under Section 48 while increasing the credit from 26% to 30% through December 31, 2032. Prior to the IRA, the credit decreased over time until an eventual 10% credit was reached. Preserving the 30% credit for ten years is much welcomed to the renewable energy sector.

Affordable housing developers utilizing Low-Income Housing Tax Credits (LIHTC) for multi-family housing projects may have added incentives for introducing solar using tax credits into their projects.

In addition, an additional 20% credit can be added to a qualified low-income residential building.  This additional “bonus” or “adder” credit could increase the ITC from 30% to 50%.

There are also additional 10% “adder” or “bonus” credits available for domestic content and energy communities, which could potentially create a credit worth up to 70%.  Another benefit is the LIHTC project does not need to adhere to any basis reductions from the generation of the ITCs and can maximize its LIHTC eligible basis in the property.

The IRA also introduced changes to (Section 45L) the Energy Efficiency Home Tax Credit, increasing the per unit incentive from $2,000 per unit up to $2,500 per unit if Energy Star rated or $5,000 per unit if Zero Energy Ready rated.

As with other IRA provisions, these rulings still may need some clarification and we will keep you apprised as they are finalized.

If you have any questions, please contact Matthew McGinnis, CPA at mmcginnis@aafcpa.com, 774.512.4080; or your AAFCPAs Partner.