New Orleans LIHTC Conference Panel Delivers Overview, Update of RETC Incentives in IRA

Attendees heard an overview of numerous clean energy rebates and tax incentives established in the Inflation Reduction Act (IRA) of 2022 during the Marriage of Clean Energy and Affordable Housing panel Sept. 29 at the Novogradac 2023 Housing Tax Credit and Bonds Conference in New Orleans.

Among the initiatives are a pair of rebate programs administered by the U.S. Department of Energy (DOE) and U.S. Environmental Protection Agency (EPA) as well as several adders, fresh possibilities and new territory for tax credits.

Rebate Programs

The DOE and state energy offices will administer the High-Efficiency Electric Home Rebate Program and the HOMES Rebate Program. Both are available for single- and multifamily homes, with higher incentives for households earning up to 80% of the area median income (AMI).

The calculation for how the rebates will be allocated by state is based on each state’s population and energy consumption, putting Texas and California at the top of the heap. States must apply for the funding and have until Jan. 31, 2025, to do so. States that choose not to apply for this program must notify the DOE of this decision by Aug. 16, 2024.

“It’s a formula-based program, and so there’s a formula that takes into consideration state and territory population as well as energy consumption in the state and territory to figure out how much each state is going to receive, what their allocation is going to be,” said Todd Nedwick, senior director of sustainability policy for the National Housing Trust. Nedwick was a panelist at the New Orleans conference.

Conference slides noted that Florida may elect not to participate in the rebate programs.

The High-Efficiency Electric Home Rebate program will provide the lesser of 100% of the costs of installing high-efficiency electric appliances or $14,000 per dwelling unit in low-income single-family and multifamily homes.

The HOMES Rebate program will provide $4,000 per dwelling unit for costs related to a retrofit that achieves a 20% reduction in energy use or $8,000 per dwelling unit for costs related to a retrofit that achieves a 35% or more reduction in energy use. At least 50% of dwelling units in a multifamily building must be occupied by households earning up to 80% of the AMI to qualify for these incentive levels.

In July, the DOE issued guidance that established minimum set-asides for low-income single-family households and low-income multifamily households, representing 40% and 10% of the available funds for the rebate program, respectively.

“We wanted that set-aside for multifamily to be a little bit higher, but the fact that DOE actually is requiring states to dedicate funds to affordable, multifamily housing is a bit of a change for DOE and we were pleased to see that,” Nedwick said. “Ten percent is just not an appropriate set-aside, obviously, for certain states with a much larger (multifamily housing) population. And so, we need to really be engaging state energy offices and making the case that the amount of funding that goes to affordable and low-income housing will be commensurate with the housing stock in the state.”

Peter Lawrence, Novogradac’s director of public policy and government relations who moderated the New Orleans panel, built on Nedwick’s point to stress the need for state energy office guidance on how to use the rebates with low-income housing tax credit properties.

“If you have a low-income housing tax credit property, we really want to encourage you to reach out to both your state housing finance agency that oversees the housing credits–they’re the ones that I think would be a helpful partner for you to reach out to–along with the state energy offices to get that guidance,” Lawrence said.

Greenhouse Gas Reduction Fund

In addition to the HOMES and High-Energy Efficiency programs, the EPA will oversee a $27 billion program split into three tranches:

• The National Clean Investment Fund, receiving $14 billion;
• The Clean Communities Investment Accelerator, with $6 billion; and
• Solar for All program, capped at $7 billion.

The Solar for All program is available to states, municipalities, nonprofits and tribal governments. Similar to the rebate programs, Nedwick mentioned that the Florida state government has indicated it will not apply for Solar for All funding. Nedwick encouraged developers in the Sunshine State to find organizations that don’t rely on the state’s participation.

“There are nonprofits within the state of Florida that are going to apply [for the Solar for All program],” Nedwick said. “This funding can be very flexible.”

Tax Provisions

Several elements in the IRA are geared toward beefing up the possibilities with the investment tax credit (ITC) and production tax credit (PTC). The bill included at least a 10-year extension of the 30% ITC, which had been phasing down starting in 2020.

Among the various adders, developers can receive 10% bonuses for building with domestic material and if their development is in “energy community,” sites that the government has marked as Brownfield sites, former coal mines or adjacent tracts, or counties that previously hosted a strong fossil fuel presence.

Lawrence urged the audience at the conference to use a mapping tool issued by the DOE to determine these regions.

“I encourage folks to look at the mapping tool, especially if you can combine being in an energy community and you’re in a difficult development area or qualified census tract, the benefits really do add up, so I want to encourage folks to take a look at that,” Lawrence said.

Additionally, the IRA allows for transfer of credits, a novel possibility for tax credits at the federal level. Guidance on the mechanics of transferability was proposed in June by the U.S. Department of the Treasury, with further information forthcoming.

The IRA further allowed for the ability to elect a direct payment of certain clean and renewable energy tax incentives in lieu of tax credits, but with important limitations, limiting direct payment to tax-exempt, state and local government entities, tribes and Alaska native claims corporations except for clean hydrogen (Section 45V), carbon sequestration (Section 45Q) and advance manufacturing projects (Section 48C).

In August, Treasury proposed regulations for the prevailing wage and apprenticeship adders for systems that are 1 megawatt or less. A public hearing on the guidance is scheduled Nov. 21 with guidance confirmed later this year.

The environmental justice solar and wind capacity limitation is a bonus ITC credit for facilities with maximum net output of 5 MW connected to
low-income communities (10%), Tribal lands (10%), affordable housing (20%) and low-income economic benefit projects (20%). The credit is available from now through 2032, but is limited to 1.8 gigawatts in each calendar year with unused amounts carried forward. Applications opened Oct. 19.

“This is an incredible housing bonus,” said Ruth Kelso Sorrell, counsel with Polsinelli Law Firm and a member of the New Orleans panel.

Additional Noteworthy Provisions

The IRA extended the Section 45L New Energy Efficient Home Credit through Dec. 31, 2032. All new residential buildings are available for the credit. Properties receiving the credit must meet the national and regional requirements of the most recent Energy Star standards. The Section 45L credit is not available for direct pay or transferability. Developers can garner up to $5,000 per unit if they meet prevailing wage standards and the DOE’s Zero Energy Ready Homes standards.

Section 179D Modification of Energy Efficient Commercial Buildings Deduction allows renewable energy retrofits of any commercial and four-or-more-stories-above-grade multifamily building covered by the American Society of Heating, Refrigerating and Air Conditioning Engineers 90.1 baseline. Buildings must be five years or older for this credit.

“[Section 179D] was initially enacted in 2005 and became effective in January 2006, but the IRA significantly expanded it in several ways,” Sorrell said. “It is an indefinite part of the tax code. It can be used on commercial properties. It can be used on multifamily with four or more stories.”

Section 30C extends an alternative fuel vehicle refueling property credit allowing developers to offset the cost of installing charging stations for electric vehicles. The IRA extended the tax credit through 2032, lowering the credit rate from 30% to 6% if the refueling property is depreciable.

“I think it’s a little slow in the uptake on this incentive, but we expect more and more folks to contribute,” Lawrence said.