High inflation and interest rates are squeezing real estate profits, making it critical for real estate and construction professionals to leverage available tax credits and deductions to offset costs and improve cash flow.

This article explores three key tax incentives — 179D, 45L and the Rehabilitation Credit — that can offer substantial benefits. These incentives not only enhance financial stability but also promote energy efficiency and the preservation of historic properties.

1. Go Green and Save with the 179D Deduction

The Energy-Efficient Commercial Buildings Tax Deduction, known as 179D, provides a tax break for installing energy saving features, such as lighting systems, heating and cooling (HVAC) and building insulation. The Inflation Reduction Act (IRA), which became effective in 2023, more than doubled this deduction to a maximum of $5.65 per square foot for 2024.

Benefits Beyond the Tax Break

• Lower energy bills
• Increased property value
• Enhanced marketability
• Protections from energy price fluctuations & regulations

The 179D deduction is available to commercial building developers, owners, designers and contractors. Building owners installing energy-efficient equipment in new constructions or renovations qualify. For tax exempt properties, designers like architects and engineers can benefit. Certification by a qualified expert is required to ensure the energy-efficiency measures meet the standards. Prevailing wage standards must also be met.

2. 45L Tax Credit: A Silver Lining for Residential Developers

Rising interest rates have made financing for residential projects difficult. However, thanks to an expansion to the program from the IRA, the 45L Energy Efficiency Home Credit offers a bright spot. This credit provides builders of energy-efficient homes and apartments with a tax break, ranging from $1,000 to $5,000 per unit.

Key Points

• Think of the 45L credit as a dollar-for-dollar reduction in your tax liability.
• Eligibility is dependent upon compliance with energy standards dictated by the Environmental Protection Agency along with the Department of Energy and the IRS.
• The maximum $5,000 credit requires paying prevailing market wages to all involved in construction.
• Efficiency savings data must be audited by a third-party independent engineering firm for accuracy and reliability.

3. Breathe New Life into History with the Rehabilitation Credit

The Rehabilitation Credit for historic preservation presents an attractive opportunity for businesses exploring relocation or innovative spaces for their evolving office needs. Eligible historical properties may qualify for a 20% credit on certain rehabilitation expenses. This credit applies to construction costs related to structural features like walls, floors and stairs while typically excluding other elements like cabinets, sidewalks and pavement.

What Makes it Attractive?

• Revitalizes historic buildings and downtowns across the country
• Provides a financial incentive for property owners to preserve history

Changes From the 2017 Tax Cuts and Jobs Act

• The 10% credit for non-designated historic properties built before 1936 is eliminated.
• The 20% credit for designated historic properties is now spread over five tax years.

Boosting Your Bottom Line

The 179D, 45L and Rehabilitation tax incentives are cost-saving tools to help real estate and construction professionals navigate a challenging economic climate. They offer significant financial relief, enhance property value and marketability and promote sustainability. By taking advantage of these incentives, real estate professionals, architects and designers can weather the storm and emerge stronger.

Interested in exploring these tax incentives for your business? Connect with us today.

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