Federal Energy Incentives Under the New Tax Law

Real estate professionals are eager to maximize tax savings on their projects while mitigating their environmental impact. There is a variety of specialty incentives available that reward green construction and encourage the installation of energy-efficient systems.

Signed into law in 2022, the Inflation Reduction Act impacted several incentives. The Act established a five-fold benefit multiplier for taxpayers successfully fulfilling the Prevailing Wage and Apprenticeship (PWA) Requirements. Meeting the requirements makes many incentives more lucrative than ever before, but taxpayers unable to meet the requirements may only claim a fraction of the previous benefit.

The recently passed One Big Beautiful Bill Act (OBBBA) has assigned sunset dates to federal energy incentives. There is still a great deal of opportunity to be had on past, current, and even future work, but taxpayers need to plan projects with an eye on the calendar.

Key Takeaways

• Sunset Dates: the OBBBA assigned sunset dates to the federal energy incentives taxpayers should consider when planning projects – see chart for dates.
• 179D Deduction: no changes to eligibility, methodology, or calculation.
• 45L Credit (IRA new standards):
  • Taxpayers must meet Energy Star or the Department of Energy Zero Energy Ready Home (ZERH) standards.
  • Benefits vary by dwelling unit and PWA compliance.
  • New mandatory steps in the claims process.
• Investment Tax Credit (ITC) & Clean Electricity Investment Credit (CEIC):
  • The OBBBA has constricted eligibility periods for both incentives but has not eliminated them regarding solar and wind systems. Other systems — geothermal, nuclear, small battery — retain their original sunset.
  • ITC: applies to projects started before 1/1/2025.
  • CEIC: applies to projects started on/after 1/1/2025, replacing ITC.
• PWA Compliance dramatically increases benefits.

OBBBA Sunset Dates

179D Deduction

The 179D deduction is a federal incentive that rewards energy-efficient construction and design of new or renovated properties. The deduction is calculated per square foot — meaning the larger the property, the larger the potential benefit.

The deduction may be claimed on commercial buildings of any size and on residential rental properties that are 4 or more stories above grade.

179D Deduction Under the OBBBA

The OBBBA does not change 179D eligibility, methodology, or calculation; it assigns a sunset date of 6/30/2026.

Projects that begin construction before 6/30/2026 may still benefit from the deduction. Projects currently under construction, projects already in service, and projects in the pipeline can still qualify.

As such, it is important to review 179D basics — this ship has not sailed by any means.

Claiming as an Owner

Property owners may claim the deduction by incorporating energy-efficient lighting or HVAC and/or building envelope features into their design. A qualified third party must perform an analysis of the property and confirm energy cost savings compared to a similar benchmark facility.

The five-fold multiplier mentioned earlier is in play, and benefit amounts adjust with inflation:

Claiming as a Designer

When working on a government building or a property owned by a tax-exempt entity, the property architect or engineer may claim the 179D deduction via allocation.

Eligible properties include:

• Government buildings
• K-12 schools and universities
• Nonprofits
• Hospitals
• Religious institutions
• Military bases
• Tribal owned properties

There may be more than one qualified designer on a project. The building owner must allocate the deduction to the designer(s) using an allocation letter.

Interplay with Cost Segregation

The 179D deduction is the perfect complement to cost segregation as it permits the immediate deduction of energy-efficient assets that are not eligible for standard accelerated depreciation. Many taxpayers have the 179D and cost segregation studies performed simultaneously.

45L Credit

The 45L credit is a federal incentive that promotes the construction of energy-efficient residential dwellings. The credit is available to builders, developers, and others who build homes for sale or lease, with eligible property types including:

• Single and multi-family homes
• Assisted living facilities
• Campus residential housing
• For-lease apartment buildings
• Condominiums

45L Credit Under the OBBBA

The 45L credit was assigned the same sunset date as the 179D deduction, 6/30/2025. There is an important distinction, however — the 179D deduction date is the date by which construction must begin. The 45L credit date is the date by which a dwelling unit must have been first sold or leased.

There is still time to leverage this incentive, keeping in mind the changes established by the IRA.

Boosting the Benefit, Altering the Procedure

The IRA introduced new standards — taxpayers must now meet either Energy Star Standards or the more exacting Department of Energy Zero Energy Ready Home Standard.

The benefit achieved depends on which standard is met, what type of property is in play, and the satisfaction of the PWA requirements:

• If PWA requirements are met, a taxpayer could claim up to $5000 per dwelling unit under the IRA.
• If the PWA requirements are not satisfied, the benefit per dwelling unit drops to $500, well below the $2000/dwelling unit taxpayers could claim pre-IRA.

The IRA also introduced significant procedural changes to the 45L claims process. To meet Energy Star requirements, the following steps are now mandatory:

• Builder must apply for Certification while still in the planning stages
• Builder must become an Energy Star Partner
• An Energy Star-Certified HERS Rater must perform field verifications during construction

The Investment Tax Credit (ITC) and the Clean Electricity Investment Credit (CEIC)

These incentives reward the installation of renewable energy systems. This discussion will focus on solar and wind systems, which have been assigned an early sunset date under the OBBBA. Other systems — geothermal, nuclear, small battery — retain their original sunset date assigned under the IRA.

Two Versions in Play

The date on which project construction commenced determines which version of the credit is applicable:

• Investment Tax Credit (ITC): construction began before 1/1/2025.
• Clean Electricity Investment Credit (CEIC): construction began on/after 1/1/2025.

As the ITC only applies to projects in which construction commenced before 1/1/2025, the incentive will soon become obsolete.

The CEIC replaces the ITC but brings a major caveat; to qualify for the CEIC, the technology in question must be “tech neutral,” or have a greenhouse gas emission rate “not greater than zero.”

Either version of the credit directly reduces tax liability by up to 30% when the PWA requirements are met.

The ITC and CEIC Under the OBBBA: Wind and Solar Systems

The OBBBA assigned a 12/31/2027 sunset date for wind and solar systems. Systems placed-in-service after 12/31/2027 are ineligible — with one exception*.

If construction of the system began on/before 7/4/2026, taxpayers have a 4-year safe harbor in which to place the system in service.

While it’s true that the OBBBA has constricted eligibility periods for these incentives, it hasn’t eliminated them. There is still ample time to leverage federal energy strategies, but now is the time to consider your options. The EisnerAmper team is here to help navigate these windows of opportunity.