The House Ways and Means Committee released Sept. 10 a draft of the $1.2 trillion portion of the FY 2022 Build Back Better reconciliation legislation, which includes infrastructure financing, housing, community development and green energy proposals, inspired by several previous pieces of tax credit legislation . If enacted, these proposals would represent the largest expansion of such tax incentives in a single piece of legislation ever. See also the accompanying section-by-section summary, Joint Committee on Taxation explanation of infrastructure financing and community development proposals, explanation of green energy proposals and cost estimates of infrastructure financing, community development and green energy proposals. The committee is scheduled to consider this portion of the reconciliation legislation Sept. 14.

See below for highlights of the housing, community development and green tax incentives, many of which were included last year’s House infrastructure financing bill, the Moving Forward Act (H.R. 2/116th).

Low-Income Housing Tax Credit (LIHTC) provisions (Overall score: $29.361 billion over 2022-31)

Similar proposals originally included in AHCIA (H.R. 2573/S. 1136) and the Decent, Affordable, Safe Housing for All (DASH) Act:

• Would increase annual LIHTC allocations (score: $11.048 billion over 2022-31) by 12.5% for 2022-25 with annual inflation adjustments in 2022-28. These allocation increases would be based on the 2021 population-based amounts ($2.81 per capita and $3,245,625 small state minimum), which represents the last year of the temporary 12.5% increase originally enacted in the fiscal year (FY) 2018 appropriations law and scheduled to expire at the end of this year. After 2028, the allocation increase in the reconciliation bill would expire, and the 2029 amounts would be based on 2017 amounts as adjusted by inflation from 2017-28. As specified in the bill, the annual allocation amounts would be:
  • $3.22 per capita and $3,711,525 small state minimum in 2022,
  • $3.70 per capita and $4,269,471 small state minimum in 2023,
  • $4.25 per capita and $4,901,620 small state minimum in 2024,
  • $4.88 per capita and $5,632,880 small state minimum in 2025, and
  • Annual inflation adjustments in 2026-28 based off the 2025 amounts; (section 135501 of reconciliation bill);
• Would temporarily reduce the tax-exempt private activity bond (PAB) financed by threshold from 50% to 25% (score: $9.498 billion over 2022-31) for buildings financed by obligations issued in calendar years (CY) 2022-28, but not obligations issued in CY 2019-21 or after 2028, and placed in service in taxable years beginning after Dec. 31, 2021. It is unclear how this effective date may affect acquisition and rehabilitation properties where the acquisition is placed in service before Jan. 1, 2022, but the rehabilitation is placed in service after Dec. 31, 2021 (section 135502 of reconciliation bill);
  
  In a March 2021 update of a report commissioned by the National Council of State Housing Agencies, Novogradac estimated that up to 1.5 million additional affordable rental homes could be financed over 2022-31 if the private activity bond financing threshold were lowered to 25% on an indefinite basis.
• Would temporarily provide a 50% basis boost for units serving extremely low-income (ELI) tenants (score: $2.603 billion over 2022-31) as long as at least 20% of the units in the building was reserved for households earning no more than 30% of the area median gross income or the federal poverty line, whichever is greater, coupled with at least a 10% set-aside of state allocations to be used specifically for these buildings. The 50% basis boost option for 9% LIHTC properties would be limited to no more 15% of the state ceiling and for properties financed by PABs with 4% LIHTC, no more than 10% of a state’s annual PAB cap. This provision would be effective for allocations and determinations of LIHTC allocation amounts after Dec. 31, 2021, and before Jan. 1, 2032 (section 135503 of reconciliation bill);
• Would provide several up-to-30%-basis-boosts for various LIHTC properties, including:
  • The discretion for state housing agencies to provide a maximum 30% basis boost (score: $4.66 billion over 2022-31) as needed for the financial feasibility of 9% LIHTC properties would be extended temporarily for properties financed by PABs. The provision would be effective for buildings that receive a determination of LIHTC allocation amount after the date of enactment and before Jan. 1, 2029 (section 135507 of reconciliation bill),
  • A maximum 30% basis boost for properties in rural areas (score: $2.654 billion over 2022-31) as defined as nonmetropolitan counties and areas in metropolitan counties of a rural nature, as defined by section 520 of the Housing Act of 1949, which determines the eligibility of U.S Departure of Agriculture (USDA) rural housing programs. This provision would be effective for buildings placed in service after Dec. 31, 2021 (section 135504 of reconciliation bill),
  • A maximum 30% basis boost for properties in Native American areas (score: $114 million over 2022-31) as defined as buildings that were assisted or financed under the Native American Housing Assistance and Self Determination Act (NAHASDA) of 1996, or, the project sponsor is a qualifying Indian tribe. This provision would be effective for buildings placed in service after Dec. 31, 2021 (section 135603 of reconciliation bill); and
• Would allow section 48 renewable energy investment tax credit (ITC) not to reduce LIHTC basis, which would facilitate the financing of solar panel on LIHTC properties. This provision would be effective for facilities placed into service after Dec. 31, 2021 (section 136102(g) in the reconciliation bill).
  A similar provision in AHCIA, which would allow the section 45L new energy efficient home tax credit and the section 179D commercial property energy efficiency deduction (see below for details on how the reconciliation bill affects those tax incentives) not to reduce LIHTC basis, may be added to the reconciliation bill later.

Novogradac is in the process of updating its unit-financing, job, and economic impact estimates of these LIHTC proposals on affordable rental housing production and preservation, and will detail them in a subsequent Notes from Novogradac blog post.

Other LIHTC provisions (overall score: raises a total of $1.217 billion over 2022-31):

• Would limit the use of qualified contracts (score: raises $466 million over 2022-31) by repealing the option for future allocations or allocations determined after Jan. 1, 2022, and changing the formula that determines the qualified contact purchase price on existing properties to fair market value, taking into consideration the rent restriction on the qualified low-income portion of the property, effective for qualified contract requests made to the allocating agency after date of enactment (section 135505 of reconciliation bill); and
• Would modify the existing statutory right of first refusal (ROFR) and clarify of rights relating to building purchase (score: raises $751 million over 2022-31) by changing the ROFR safe harbor into a purchase option safe harbor. For existing agreements, the provision would clarify, for purposes of the safe harbor, that the right to acquire the building includes the right to acquire all of the partnership interests relating to the building. It would also clarify that the right to acquire the building includes the right to acquire assets held for the development, operation or maintenance of the building. For existing agreements, the provision would also clarify that the ROFR safe harbor may be satisfied by the grant of a purchase option. A ROFR may be exercised in response to an offer by a related party; a bona fide third-party offer is not needed. A ROFR may be exercised without the approval of any owner of a credit project. Finally, the provision would amend the minimum purchase price to exclude exit taxes. For new properties, the purchase option provision would be effective for agreements entered into or amended after date of enactment, and for existing properties, the clarification on the ROFR safe harbor would be effective retroactively. (section 135506 of reconciliation bill).

Neighborhood Homes Tax Credit (score: $17.736 billion over 2022-31)

The bill would create a neighborhood homes tax credit (NHTC) very similar to the tax credit proposed in the Neighborhood Homes Investment Act (H.R. 2413, S.98), and the DASH Act. The Neighborhood Homes Coalition estimates the proposed NHTC would finance the construction or rehabilitation of 500,000 owner-occupied homes in distressed neighborhoods over a decade. Please see this post for an overview of the NHTC. Notably, this proposal would increase in the amount from 35% called for in previous versions to 50% for the rehabilitation of homes for existing homeowners.

NMTC Proposals (overall score: $2.671 billion over 2022-31)

Similar proposals in the New Markets Tax Credit (NMTC) Extension Act (H.R. 1321, S. 456)

• Would make the NMTC a permanent part of the Internal Revenue Code as originally introduced in the New Markets Tax Credit Extension Act (H.R. 1321, S. 456). Would provide $5 billion in annual allocation baseline authority in 2024, adjusted annually for inflation starting in 2025 (section 135201 in reconciliation bill);
• Would provide NMTC investors with relief from the alternative minimum tax (AMT) for NMTC determined by qualified equity investments made after Dec. 31, 2021 (section 135201 in reconciliation bill).

Other NMTC proposals

• Would provide a total of $3 billion in supplemental allocation authority in 2022-23 to aid in recovery from the economic downturn resulting from the pandemic, including an additional $2 billion in 2020 for a total of $7 billion available that year, and an additional $1 billion in 2023 for a total of $6 billion available that year (section 135201 in reconciliation bill);
• Would create a permanent $175 million separate pool of NMTC authority for low-income community investments in tribal statistical areas, for tribal areas and for projects that serve or employ tribe members. The new tribal allocation amount would be indexed for inflation beginning in 2024 (section 135602 in reconciliation bill);
• Would create a permanent $100 million separate pool NMTC authority for low-income community investments in the U.S. territories. At least $80 million would need to be invested in Puerto Rican low-income communities and the remaining $20 million would be available for low-income communities in the other U.S. territories. The new U.S territory allocation amount would be indexed for inflation beginning in 2024 (section 135702 in reconciliation bill); and

• Combining these NMTC allocation increase proposals together would provide the following annual NMTC allocation amounts:
• 2021: $5 billion
• 2022: $7.275 billion
• 2023: $6.275 billion
• 2024: $5.38 billion*
• 2025: $5.50 billion*
• 2026: $5.62 billion*
• 2027: $5.74 billion*
• 2028: $5.86 billion*
• 2029: $5.99 billion*
• 2030: $6.12 billion*
• *estimated, based on July 2021 Congressional Budget Office inflation projections

HTC Proposals (overall score: $26.476 billion over 2022-31)

Similar proposals originally included in the Historic Tax Credit Growth and Opportunity Act (HTC-GO, H.R. 2294/S. 2266):

• Would provide temporary increases in the HTC percentage (score: $8.544 billion over 2022-31) according the following schedule:
• 2020-2025: 30%
• 2026: 26%
• 2027: 23%
• 2028 and thereafter: 20%

This provision would be effective for property placed in service after March 31, 2021 (section 135301 in reconciliation bill).

• Would increase the HTC for certain small projects (score: $1.457 billion over 2022-31). This provision would permanently increase the HTC percentage from 20% to 30% for certain smaller projects to ensure rural and small towns can more effectively utilize the credit. The increased small project credit would cap qualified rehabilitation expenses (QREs) at $2.5 million, or approximately $750,000 in credits, while ensuring there is not a cliff as between the small project credit and the HTC for all projects. The provision would be at the election of the taxpayer to allow them to choose between the HTC and the small project credit. This provision would be effective for tax years beginning after Dec. 31, 2021 (section 135302 in reconciliation bill);
• Would lower substantial rehabilitation test threshold (score: $8.47 billion over 2022-31) so that qualified rehabilitation expenditures must exceed the greater of:
  • 50% of the adjusted basis of the building (and its structural components) instead of 100% under current law, or
  • $5,000.
    This provision would be effective for 24-month (or 60-month) periods ending after Dec. 31, 2021 (section 135303 in reconciliation bill);
• Would eliminate HTC basis adjustment (score $6.097 billion over 2022-31). This provision would change the amount of the depreciable basis adjustment from 100% to zero, eliminating the requirement that the HTC be deducted from a building’s basis at the time of transfer. This change would provide the HTC parity with LIHTC on depreciable basis and facilitate using both credits on comprehensive adaptive reuse and renovation developments. This provision would be effective for property placed in service after Dec. 31, 2022 (section 135304 in reconciliation bill).
• Would modify rules regarding certain tax-exempt use property (score: $481 million over 2022-31). This provision would amend the disqualified lease rules, making the HTC easier to access by nonprofits and other tax-exempt entities. Leases disqualified under current law that inhibit the rehabilitation of these buildings—like those with purchase options, leases in excess of 20 years and leases in buildings that use tax-exempt financing—would be permitted. These changes would make projects like health care centers, arts organizations, community services, workforce training providers and others better able to use the HTC. This provision would be effective for leases entered into after Dec. 31, 2021 (section 135305 in reconciliation bill).

Other HTC proposals

• Would include the Rehabilitation of Historic Schools Act (H.R. 4086, score: $1.427 billion over 2022-31) as originally introduced by Rep. Dwight Evans, D-Pennsylvania, which would allow qualified historic public school building renovations be assisted by the HTC with the limitation that the building must have been used as a school within the last five years. This provision would be effective for property placed in service after Dec. 31, 2021 (section 135306 in reconciliation bill).

Renewable, Clean Energy and Energy Efficiency Tax Incentive Proposals (overall score of the following green energy proposals mentioned below: $157.645 billion over 2022-31)

Similar proposals originally included the Growing Renewable Energy and Efficiency Now Act (GREEN Act, H.R. 848)

Cross-cutting provisions of green energy proposals

1. Would use a two-tier structure. The green energy subtitle of the reconciliation bill would create various new and existing renewable energy and energy efficiency incentives within the tax code as two-tiered incentives with a “base rate” and a “bonus rate.” The base rate would be equal to 20% of the bonus rate and the bonus rate would be an increased rate for projects that meet certain prevailing wage and apprenticeship requirements mentioned below. For incentives that phase down in 2032 and 2033, the phasedown rate would apply proportionally to the base credit rate and the bonus credit rate.
2. Would require cross-cutting labor-related provisions
   
   1. Prevailing wage. The reconciliation bill would require that, in order to claim the “bonus rate” with respect to a project, the taxpayer would have to ensure that any laborers and mechanics employed by contractors and subcontractors were paid prevailing wages during the construction of such project and, in some cases, for the alteration and repair of such project for a defined period after the project is placed into service. In the event the taxpayer failed to satisfy these requirements, the taxpayer could cure the discrepancy by compensating each worker the difference between wages paid and the prevailing wage, plus interest, in addition to paying a $5,000 penalty to the Treasury for each worker paid below the prevailing wage during the taxable year.
   2. Apprenticeship. The reconciliation bill would require that, in order to claim the “bonus rate” with respect to a project, the taxpayer would have to ensure that no fewer than the applicable percentage of total labor hours are performed by qualified apprentices. The applicable percentage for purposes of this requirement would be 5% for projects for which construction begins in 2022. This rate would be increased to 10% in 2023, and 15% thereafter. This provision would require that each contractor and subcontractor who employs four or more individuals to perform construction on an applicable project would have to employ at least one qualified apprentice to perform such work. In the event a taxpayer failed to satisfy these requirements, the taxpayer could cure the discrepancy by paying a penalty to the Treasury equal to $500 multiplied by the total labor hours for which the requirement is not satisfied. In the event of a lack of available qualified apprentices necessary to satisfy this requirement with respect to construction of a project, this provision would provide for an exemption process by which taxpayers may be deemed as having made a good faith effort to hire qualified apprentices with respect to construction of such project.
3. Would require domestic content. The reconciliation bill would require that, with respect to the facility for which a tax credit is claimed, the taxpayer would have to ensure that such facility is composed of steel, iron or products manufactured in the United States. For purposes of these requirements, a manufactured product would be deemed to have been manufactured in the United States if not less than 55% of the total cost of the components of such product is attributable to components which are mined, produced or manufactured in the United States. Such rules would be applied in a manner consistent with the United States’ obligations under international rules.

Tax incentive extensions and modifications

• Would extend PTC with a base credit rate of 0.5 cents/kilowatt hour and bonus credit rate of 2.5 cents/kilowatt hour through 2031 with a phasedown after that as specified below (score: $42.851 billion over 2022-31).
  • Most facilities: The PTC for the following facilities would be extended through the end of 2031, phasing down to 80% of the applicable rate in 2032, and 60% of the applicable rate in 2033:
    • landfill gas (municipal solid waste),
    • trash (municipal solid waste),
    • qualified hydropower,
    • marine and hydrokinetic renewable energy facilities, and
    • geothermal.
  • Wind: The PTC for wind energy would be increased to the full applicable credit rate through the end of 2031, phasing down to 80% in 2032, and 60% in 2033.
  • Solar: The PTC for solar energy would be revived and extended through 2031, phasing down to 80% of the applicable credit rate in 2032, and 60% of the applicable credit rate in 2033. Taxpayers could continue to claim the applicable credit value of the Section 48 ITC in lieu of the PTC with respect to such property.
    
    Taxpayers could claim an increased credit for facilities placed into service after Dec. 31, 2021 if such facilities meet domestic requirements described above. This provision would provide a base credit increase of 2% of the amount otherwise allowable with respect to such facility, or a bonus credit increase of 10% of the amount otherwise allowable with respect to such facility. These values would not be subject to phasedown in 2032 and 2033 (section 136101 of the reconciliation bill)
• Would extend ITC for projects that begin construction before the end of 2032 and then would phase down over two years (score: $63.907 billion over 2022-31). The provision would provide a base credit rate of 6% of the basis of qualified energy property or a bonus credit rate of 30% of the basis of qualified energy property. These credit rates would apply with respect to facilities placed into service after Dec. 31, 2021. The base credit rate would phase down to 5.2% for facilities that commence construction in 2032 and 4.4% for facilities that commence construction in 2033. The bonus credit rate would phase down to 26% in 2032 and 22% in 2033.

In order to claim the ITC at the bonus credit rate, taxpayers would have to satisfy prevailing wage requirements for the duration of the construction of the project and for five years after the project is placed into service, and  apprenticeship requirements during the construction of the project. Projects that commence construction before date of enactment or have a maximum net output of less than one megawatt would be treated as eligible for the bonus rate (i.e., exempt from prevailing wage and apprenticeship requirements).

• Solar: In addition to allowing taxpayers to elect to claim the PTC for solar energy facilities, the ITC for solar energy property would be extended, providing a base credit rate of 6% and a bonus credit rate of 30% through the end of 2031. The ITC for solar energy property would then phase down in 2032 and 2033, providing a base rate of 2% or a bonus rate of 10% thereafter.
• Geothermal: The ITC for geothermal energy property would be modified to match the credit timeline for solar energy property. Therefore, the ITC for geothermal energy property would be extended, providing a base credit rate of 6% or a bonus credit 30% through the end of 2031. The ITC for geothermal energy property would then phase down in 2032 and 2033, providing a base credit rate of 2% or a bonus credit rate of 10% thereafter.
• Other currently eligible property: The ITC for fiber-optic solar equipment, fuel cell property, microturbine property, combined heat and power property, small wind energy property, biogas property, waste energy recovery property, and offshore wind property would be extended, providing a base credit rate of 6% or a bonus credit rate of 30% through the end of 2031, phasing down in 2032 and 2033. No credit would be allowed with respect to such energy property that commences construction after 2033 or not placed in service before 2036.

• Newly eligible property: The ITC would be expanded to include energy storage technology and linear generators. These technologies would be eligible for a 6% base credit rate or a 30% bonus credit rate through the end of 2031, phasing down in 2032 and 2033. No credit would be allowed with respect to such energy property that commences construction after 2033 or not placed in service before 2036. These technologies are briefly described as follows:
  • Energy storage technology uses batteries and other storage technology to store energy for conversion to electricity and has a minimum capacity of 5 kWh, or to store energy to heat or cool a structure.
  • Linear generators convert fuel into electricity through electromechanical means using a linear generator assembly without the use of rotating parts. The credit for linear generators is limited to systems with a nameplate capacity of at least 1 kW.
  • Microgrid Controllers control the energy resources and loads needed to maintain acceptable frequency, voltage or economic dispatch of a microgrid capable of operating as a single controllable entity independent from the electrical grid.
  • Dynamic Glass or electrochromic glass which uses electricity to change its light transmittance properties to heat or cool a structure.
  • Biogas property that converts biomass into a gas which consists of not less than 52% methane, or is concentrated by such system into a gas which consists of not less than 52% methane, and captures such gas for productive use.
    
    Taxpayers could claim an increased credit with respect to energy property placed into service after Dec. 31, 2021 if such property met the domestic requirements described above. This provision would provide an increase in the base credit rate of 2% or an increase in the bonus credit rate of 10% with respect to the credit percentage allowable for such facility. These amounts would not be subject phasedown in 2032 and 2033.
    
    These amendments made by this provision would apply to facilities placed into service after Dec. 31, 2021. The amendments pertaining to newly eligible property would apply to periods after Dec. 31, 2021 under rules similar to section 48(m) (section 136102 of the reconciliation bill).
• Would provide an additional 20% credit for the solar ITC if the solar facility is placed in service in connection with a qualifying low-income residential building, or an additional 10% credit if the facility is located in a low-income community, as defined by the NMTC statute (section 45D). The score for this proposal is incorporated in the score for the ITC extension and modification. The annual capacity limitation would be 1.8 gigawatts for each calendar year 2022 through 2031 and zero for calendar years thereafter. The annual capacity limitation would be increased by the amount of any unused allocations from the preceding calendar year, but not beyond 2033 (section 136103 of the reconciliation bill).
• Would allow taxpayers to receive “direct payment” in lieu of a tax credit for certain renewable sources. The provision would allow taxpayers to elect to be treated as having made a payment of tax equal to the value of the credit they would otherwise be eligible for under the—
  • section 48 ITC,
  • section 45 PTC,
  • section 45Q credit for carbon capture and sequestration,
  • section 30C alternative fuel vehicle refueling property credit,
  • section 48C advanced energy project credit
  • section 48D investment credit for transmission property,
  • section 48E zero emissions facility credit,
  • section 45W zero-emission nuclear power production credit, and
  • section 45X clean hydrogen production credit.
    
    Rather than opting to carry forward credits to years when their credits can offset their tax liability, taxpayers could request a refund for the deemed payment of tax upon completion of construction. This provision would apply to projects placed into service after Dec. 31, 2021. Projects could make elections under this section starting 180 days after date of enactment. The score for this proposal is incorporated into the score of the PTC and ITC proposals (section 136104 in reconciliation bill).
• Would expand ITC for electric transmission property (score: $9.765 billion over 2022-31). This provision would provide for a tax credit for the basis of qualifying electric transmission property placed in service by the taxpayer. The base credit rate would be 6% of the basis of qualified electric transmission property and the bonus credit rate would be 30% of the basis of qualified electric transmission property. To claim the ITC at the bonus credit rate, taxpayers would have to satisfy prevailing wage requirements for the duration of the construction of the project and for five years after the project is placed into service, and  apprenticeship requirements during the construction of the project.
  
  Qualifying electric transmission property would be defined as tangible, depreciable property which is:
  • An electric transmission line that is capable of transmitting electricity at a voltage of not less than 275 kilowatts and has a transmission capacity of not less than 500 megawatts; or
  • Related transmission property.
    This credit would be effective for property placed into service after Dec. 31, 2021, and before Jan. 1, 2032 (section 136105 in reconciliation bill).
• Would extend section 45Q carbon oxide sequestration credit (score: $908 million over 2022-31) for facilities that begin construction before the end of 2031. The provision would provide a base credit rate of $10 and a bonus credit rate of $50 per metric ton of carbon oxide captured for geological storage, and a base credit rate of $7 and a bonus credit rate of $35 per metric ton of carbon oxide captured and utilized for an allowable use by the taxpayer. To claim the PTC at the bonus credit rate, taxpayers would have to satisfy  prevailing wage requirements for the duration of the construction of the project and for each year during the twelve-year credit period, or where applicable, until the credit is phased out as determined by the Treasury Secretary, and apprenticeship requirements during the construction of the project.
  
  The amendments made by this provision would apply for facilities placed into service after Dec. 31, 2021 (section 136107 of the reconciliation bill).
• Would expand eligibility of publicly traded partnerships to green energy (score: $975 million over 2022-31). The provision would expand the definition of qualified income for publicly traded partnerships from certain income derived from minerals and natural resources to include income derived from green and renewable energy. These additions would include income from certain activities related to energy production eligible for the PTC, property eligible for the ITC, renewable fuels, and energy and fuel from certain carbon sequestration or gasification projects eligible for credits under sections 48B or 45Q (section 136108 in reconciliation bill).
• Would extend, increase and modify section 25C nonbusiness energy property credit (score: $14.938 billion over 2022-31. The provision would extend the section 25C nonbusiness energy property credit to property placed in service by the end of 2031. For expenditures and property placed in service starting in 2021, the provision would modify and expand the credit, including by:
  • increasing the percentage of the credit for installing qualified energy efficiency improvements from 10% of the cost to 30%,
  • increasing the lifetime cap on credits allowed under this provision from $500 to $1,200,
  • updating various standards and associated limits to reflect advances in energy efficiency and removing eligibility of roofs and advanced main air circulating fans,
  • requiring that manufacturers and taxpayers comply with reporting the identification number of certain property placed into service in order to access the credit, and
  • expanding the credit to cover the costs of home energy audits, allowing a credit of 30% of such costs up to a maximum credit of $150 (section 136301 in reconciliation bill)
• Would extend section 25D residential energy efficient property credit (score: $20.951 billion over 2022-31). The provision would extend the credit for the cost of qualified residential energy efficient property expenditures, including solar electric, solar water heating, fuel cell, small wind energy and geothermal heat pumps. The provision would extend the full 30% credit for eligible expenditures through the end of 2031. Like the ITC, the credit would then phase down to 26% in 2033 and 22% in 2033. The credit would expire after the end of 2027. The provision would also expand the definition of eligible property to include battery storage technology and energy efficient biomass fuel property (section 136302 in reconciliation bill).
• Would increase and modify section 179D energy efficient commercial buildings deduction (score: $626 million over 2022-31). Starting in 2022, the provision would update and expand the section 179D energy efficient commercial buildings deduction by increasing the maximum deduction, determined on a sliding scale. It would also change this maximum from a lifetime cap to a three- year cap. The provision would update the eligibility requirements so that property must reduce associated energy costs by 25% or more in comparison to a building that meets the American Society of Heating, Refrigeration and Air-cooling Executives (ASHRAE) standards as of three years prior to the date such building is placed into service.
  
  The maximum value of the base deduction would be $0.50 per square foot, increased by $0.02 per square foot for every percentage point by which the designed energy cost savings exceed 25% against the reference standard, not to exceed $1.00 per square foot. The value of the bonus deduction would be $2.50 per square foot, increased by $0.10 per square foot for every percentage point by which designed energy cost savings exceed 25% against the reference standard, not to exceed $5.00 per square foot.
  
  This provision would allow taxpayers to elect to take an alternative, parallel deduction for energy efficient lighting, HVAC, and building envelope costs placed into service in connection with a qualified retrofit plan. The value of base the deduction would be determined by the reduction in a building’s energy usage intensity (EUI) upon completion of the retrofit, equal $0.50 per square foot, increased by $0.02 per square foot for every percentage point by which the reduction in EUI exceed 25%, not to exceed $1.00 per square foot. The value of the bonus deduction would be $2.50 per square foot, increased by $0.10 per square foot for every percentage point by the reduction in EUI exceed 25% against the reference standard, not to exceed $5.00 per square foot.
  
  To claim the bonus deduction amount, taxpayers would have to satisfy prevailing wage and apprenticeship requirements for the duration of the construction of the project. To qualify for the alternative deduction, a building retrofit project would have to reduce a building’s EUI by no less than 25%. This provision would allow tax-exempt entities to allocate the deduction to the designer of the building or qualified retrofit plan. The amendments made by this provision would expire after Dec. 31, 2031. (section 136303 in reconciliation bill).
• Would extend, increase and modify section 45L new energy efficient home credit (score: $2.724 billion over 2022-31). The provision would extend the section 45L new energy efficient home credit through 2031.
  • Single family and manufactured homes. In the case of new homes acquired after 2022 that are eligible to participate in the ENERGY STAR Residential New Construction Program or Manufactured Homes Program, the provision would provide a $2,500 credit for energy efficient single family and manufactured new homes meeting certain energy star requirements.
    • Single-family homes would have to meet the most recent Energy Star Single-Family New Homes Program requirements applicable to such dwelling location as in effect on  the latter of Jan. 1, 2022 or Jan. 1 of two calendar years prior to the date the home is acquired and National Program Requirement Version 3.1 for homes acquired before 2025 and Version 3.2 thereafter.
    • Manufactured homes would have to meet the most recent Energy Star Manufactured Home National Program requirements as in effect on the latter of Jan. 1, 2022 or Jan. 1 of two calendar years prior to the date the dwelling is acquired.
      
      This provision would provide a higher tier credit of $5,000 credit for eligible single family and manufactured new homes certified as a zero energy ready under the Department of Energy Zero Energy Ready Home Program.
  • Multifamily homes. In the case of new homes acquired after 2022 that are eligible to participate in the ENERGY STAR Multifamily New Construction Program, the provision would provide a base credit of $500 and a bonus credit of $2,500 for multifamily units that meet:
    • the most recent Energy Star Manufactured Home National Program requirements as in effect on the latter of Jan. 1, 2022 or Jan. 1 of two calendar years prior to the date the dwelling is acquired and
    • the most recent Energy Star Manufactured Home Regional Program requirements applicable to such unit as in effect on the latter of Jan. 1, 2022 or Jan. 1 of two calendar years prior to the date the dwelling is acquired.
      
      This provision would provide a higher tier base credit of $1,000 or a bonus credit of $5,000 for eligible multifamily units certified as a zero-energy ready under the U.S. Department of Energy Zero Energy Ready Home Program. To claim the bonus credit amount with respect to a multifamily unit, taxpayers would have satisfy prevailing wage requirements for the duration of the construction of such units (section 136305 in reconciliation bill).

Next steps

The Ways and Means Committee is scheduled to consider this portion of the legislation Sept. 14. The following day the committee is expected to consider provisions to pay for the provisions in the reconciliation bill that increase the deficit. If approved, this bill would be combined with reconciliation bills from the other committees, such as the Financial Services Committee bill, into one reconciliation bill by the House Budget Committee later this week or next. If reported by the Budget Committee as expected, House leadership is currently planning to bring up the reconciliation bill to the Rules Committee and the House floor next week.

However, some rank and file House Democrats, especially moderates in the Problem Solvers and Blue Dog caucuses, are concerned about voting for spending totals and the proposals to pay for such spending that are likely to be cut by the Senate. Therefore, House leadership may need to wait until there is an agreement with Senate Democrats on the total levels of spending and pay-fors before bringing the combined reconciliation bill up for a House floor vote. Given that reality, it is very likely that both the revenue-reducing (such as the housing, community development and green energy tax incentive proposals) and revenue raising proposals in the Ways and Means Committee portion of the reconciliation will need to be reduced to conform to the lowered level of total spending, total cap of revenue reductions and reduced revenue-raising payfors. Despite these likely reductions, the bill will still likely represent the largest expansion of housing, community development and green energy tax incentives in a single piece of legislation ever. Stay tuned.