Matthew Berger is Vice President of Tax and Vice President of Student Housing at NMHC.
Paula Cino is Vice President of Construction, Development and Land Use Policy at NMHC.
On August 16, President Biden signed into law the Inflation Reduction Act of 2022, which will impact climate, healthcare and tax policy. Notably, carried interest provisions that would have negatively impacted the multifamily industry were not included in the final package.
What We’re Watching: While NMHC is pleased the carried interest provision is off the table, there are a handful of other provisions included in the $740 billion package that could have an impact on our industry.
Use the drop downs below for a full rundown of what we’re watching and how it could impact the industry.
Beginning for property placed in service in 2023, the base deduction for buildings with four or more stories that exceed 25 percent of ASHRAE standards in effect three years before a building is placed into service will be $0.50 per square foot for energy savings. It will increase by $0.02 per square foot for every percentage point by which energy savings exceed the 25 percent baseline threshold, up to $1.00 per square foot. Bonus amounts of five times the base amount are available for taxpayers meeting both prevailing wage and apprenticeship requirements.
Additionally, taxpayers will be able to take a deduction for energy efficient lighting, HVAC and building envelope costs placed in service as part of a retrofit. The value of the deduction will be based upon how much energy savings is achieved relative to the building’s own baseline energy use.
A minimum 25 percent reduction would be required to realize a $0.50 per square foot gain in the base deduction. The base deduction will be increased by $0.02 per square foot for each additional percentage point in energy savings, up to $1.00 per square foot. Bonus amounts of five times the base amount are available for taxpayers meeting both prevailing wage and apprenticeship requirements.
NMHC has long called for retrofits with energy savings measured against an existing building’s baseline energy usage to be eligible for the deduction.
Finally, the provision includes a special rule to enable REITs to take advantage of the deduction.
With regard to apprenticeship requirements for bonus amounts, projects will also have to be staffed by apprentices (10 percent of labor hours must be performed by apprentices for projects commencing construction in 2022, 12.5 percent in 2023, and 15 percent thereafter, with a minimum of one apprentice for each contractor or subcontractor employing at least four workers. Exemptions would be permitted if apprentices are unavailable.
Additional information regarding energy provisions included in the IRA can be found here.
The Act extends the New Energy Efficient Home Credit (which under current law applies to buildings of three or fewer stories but after 2022 will apply to all buildings meeting the requirements of the ENERGY STAR Multifamily New Construction Program) through 2032. For multifamily units acquired after 2022, a base credit of $500 is provided for units that participate in the ENERGY STAR Multifamily New Construction Program while meeting both national and regional program requirements. A base credit of $1,000 is available to multifamily homes certified as zero energy ready under the Department of Energy Zero Energy Ready Home Program. Bonus credit amounts totaling five times the base credit are available for taxpayers meeting applicable prevailing wage requirements. Finally, a provision is included so that the credit may be better used in conjunction with the Low-Income Housing Tax Credit.
The package allocates $330 million in grants to help states adopt the most recent residential and commercial building energy codes International Energy Conservation Code ASHRAE Standard 90.1-2019 or codes achieving equal or greater energy savings. In addition, it provides state and local governments $670 million to adopt building codes that meet or exceed the zero-energy provisions in the 2021 IECC.
While NMHC supports cost-effective and technologically feasible energy codes, we caution against one-size-fits-all federal policies that direct the use of specific code provisions or editions. The codes and standards specified in this program are designed to be amended and adopted by state and local jurisdictions based on their individual needs and characteristics. Federal incentives must be designed to improve code implementation and performance over a jurisdiction’s existing baseline and acknowledge the diversity of conditions that impact state and local code adoption.
The package includes $1.89 billion for fiscal 2022 for states, local governments, territories, or transportation authorities to increase neighborhood access and transportation equity. It also includes $1.26 billion for additional grants to communities that adopt anti-displacement policies or community land trusts.
- Energy or water efficiency;
- Indoor air quality or sustainability;
- Zero-emission electricity generation or low-emission building materials or processes;
- Energy storage;
- Building electrification; and
- Climate resilience.
The package includes $837.5 million for HUD to provide grants or loans to affordable housing owners that implement:
The Act would extend for two years, through 2028, a provision limiting excess business losses that was otherwise set to expire at the end of 2026. Under current law, a non-corporate taxpayer is considered to have an excess business loss if their total business deductions exceed business income plus $270,000 for single filers and $540,000 for joint filers (adjusted annually for inflation). Excess business losses exceeding the limit and subject to disallowance in the current tax year are treated as a net operating loss carryforward in the succeeding year.
