Understanding the Inflation Reduction Act (IRA) and Its Energy Tax Benefits for Tribes

Understanding the Inflation Reduction Act (IRA) and Its Energy Tax Benefits for Tribes Presented by: Mrs. Rivera Date: August 3, 2023 IRA: Climate & Energy - The most significant climate legislation in U.S. history - Provides incentives in the form of direct spending and tax benefits - Provides a significant runway for investments - Helps ensure disadvantaged communities are not left behind - Has strong labor components, ensuring job creation - Focused on domestic supply chain and onshoring Agenda - - IRA Tax Benefits • Overview of Tax Provisions • Introduction to Direct Pay Questions and Answers Tax Credits - - - Energy Manufacturing • Advanced Energy Project Credit - Section 48C • NEW Advanced Manufacturing Production Credit - Section 45X Clean Vehicles • NEW Qualified Commercial Vehicles - Section 45W • Alternative Fuel Vehicle Refueling Property (charging stations) - Section 30C Carbon Sequestration • - Credit for Carbon Oxide Sequestration - Section 45Q Energy Generation • Investment Tax Credit - Section 48  NEW Clean Electricity Investment Credit - Section 48E • Production Tax Credit - Section 45  NEW Clean Electricity Production Credit - Section 45Y - Clean Fuels • Extension of existing credits • NEW Clean Hydrogen - Section 45V • NEW Clean Fuel Production Credit - Section 45Z Direct Pay of Tax Credits - Credits can be directly paid to Native American tribes • Only available for applicable entities, which includes Native American tribes. • Can elect for direct payment of most of IRA energy credits. • Direct payment = asking IRS for $ Investment Tax Credit Example - Tax credit for placing in service projects that produce renewable energy (e.g., solar, wind, electrochromic glass), certain interconnection property, qualified biogas property, or energy storage projects. - If certain labor conditions are met, the credit value is multiplied five (6%→ 30%). - Additional bonus credit amounts are available based on domestic content, placement in an energy community, or with an allocation for placement in connection with a low-income community. - Tax credit claimed in the year the project is placed in service. Other Tax Benefits - Section 179D - Energy Efficient Commercial Building Deduction - Tax Deduction = Cost of qualified energy efficient property x square feet of building • Tax deduction for installing qualifying energy efficient property that reduce a building's annual energy costs. • Such property includes improvements to a building's interior lighting systems, heating, cooling, ventilation and hot water systems, or improvements to the building envelope. • The value of the deduction is variable based on the improvements to efficiency, with a maximum allowable benefit - assuming certain labor conditions are met - of $5.00 per square foot of the building area. • The value of the deduction is also capped at the cost of the property and overall the property must improve the energy efficiency of a building by 25%. - Tribes can now benefit! Section 179D – Tax Deduction Example - A Tribe expends $100,000 for energy efficient building property, e.g. a new cooling system for an existing building meeting certain labor conditions. - The building is 200,000 square feet. Based on the cost expended, a $100,000 tax deduction is available. • (Note: The deduction is based and limited on the costs expended - under these facts the maximum deduction amount, $1,000,000 (200,000 square feet x $5.00), is unavailable because it is limited by cost.) - Although the Tribe would historically not benefit from the available deduction, as a result of the IRA the Tribe can allocate the deduction to the architect. At a 35 percent federal income tax rate, the architect's tax bill is reduced by $35,000. - By leveraging the ability to allocate the Section 179D deduction to the architect, the Tribe has lowered its costs for making such improvements. IRA Leverage Opportunities - Example: A Tribal government is using Fiscal Recovery Funds to construct a new administration building. If that building is qualified energy efficient property, the tribe's costs for the building would be reduced due to the Section 179D deduction freeing up funding for other projects. Electrification Of Fleets - EV Vehicles • Tax credit for the purchase of qualified commercial clean vehicle - vehicle must be propelled by a significant extent with electrify from a battery. • Max credit of $7,500 for vehicles with a weight rating less than 14,000 lbs; $40,000 for all other vehicles. • - In addition to vehicles, the credit is available for clean mobile machinery. EV Charging • Credit for cost of alternative fuel vehicle refueling property placed in service. • Must be located in eligible census tract, i.e. non-urban or lower income. (This could be a significant limitation) • Credit is 6% up to 30% if labor conditions are met. • Maximum credit per single unit is $100,000.