A Manchin and a . . .What? The Impact of the Inflation Reduction Act of 2022 on the Real Estate Industry

Hunting Rabbits.?

740 billion bunnies to be pulled out of hats in time for the midterms.

Magic tricks aside, here are some provisions of the Inflation Reduction Act of 2022?that may impact the real estate industry:

Accelerated Cost Recovery for Energy Efficient Commercial Buildings

Under prior law, a deduction for the installation of certain systems that reduce total energy and power received a maximum credit of $1.88 per square foot. That deduction is now increased to $5.00 per square foot. This applies to new construction and eligible retrofits.

In addition, certain tax-exempt building owners can allocate the deductions to designers of the tax-exempt building’s energy efficient systems. That allocation was historically limited to government buildings.

Modification of New Energy Efficient Home Credit

The Energy Efficient Home Credit was increased to $5,000 and the window to qualify was extended to homes acquired during the period?January 1, 2022 -January 1, 2033.

Increase to Corporate Alternative Minimum Tax

On certain corporations, a newly structured AMT of 15% will be applied on profits that exceed $1 billion. It will be based on adjusted financial statement income prepared in accordance with GAAP, as opposed to taxable income.

Good news: This tax increase does not apply to real estate investment trusts.

New Excise Tax on Repurchased Stock

An excise tax of 1% will be imposed on the fair market value of any stock which is repurchased by a domestic corporation traded on an established securities exchange.

Research Credit for Small Businesses

The research credit for eligible small businesses was increased to $500,000.

Renewable Electricity Production Credit

The Section 45 renewable electricity production credit for eligible facilities was extended to January 1, 2025.

Clean Vehicle Credits

Purchasers of eligible clean vehicles assembled in North America?(under $80,000 if van, suv, pick up truck or under $55,000 for all others) may receive a tax credit.

Changes to Section 48 Energy Credit

For property beginning?construction before January 1, 2025, the IRC section 48 credit for certain energy equipment was made?available.

Furthermore, the credit for a combined power and heat system was made available for projects on which construction begins before January 1, 2035.

Monetization of Certain Tax Credits

Eligible entities may elect to treat certain credits as a payment applied to identified taxes imposed by the legislation. Of import to the real estate industry, the eligible entities included certain exempt organizations, states and their political subdivisions and cooperative corporations engaged in furnishing electric energy to persons in rural areas.

Still no SALT

The SALT deduction limitation of $10,000 has been extended for an additional year.

Extended Limitation on Excess Business Losses

The limitation date for excess business losses of non corporate taxpayers was extended for an additional year to December 31, 2027.

Conclusion

The real magic has nothing to do with rabbits, top hats or any other usual prestidigitations.

The real trick will be lowering inflation with a law that increases spending by an estimated $437 billion and raises taxes by $737 billion.

The encore will be coming up with a better acronym for the Inflation Reduction Act.

IRA isn’t cutting it.

The Real?Estate Industry might just be vewy quiet until November and cast blame on the wabbits of Washington.

Elmer would be proud.?