With the regulatory environment constantly changing, it is more important than ever that not-for-profit organizations stay on top of trends and federal law updates. The Inflation Reduction Act of 2022 (IRA) is an excellent example of the expanding opportunities available to exempt organizations looking for energy sustainability options, including updating their facilities, energy-efficient power, or electric vehicles.

Opportunities and Incentives Through the IRA

As part of the IRA bill, many provisions extend to not-for-profits that were previously only available to for-profit entities and individuals. For instance, direct pay options (similar to a refundable credit) are now allowed for not-for-profits investing in certain renewable or clean energy, alternative fuels, clean/electric vehicles, and other environmental opportunities. Also, IRC section 179D deduction for energy-efficient commercial buildings is now available for exempt organizations and tribal governments; previously, it was only available to government-owned facilities. Section 179D allows the designer (the for-profit entity) to deduct up to $5 per square foot for certain energy-efficient improvements and buildings. The good news is that, as part of the process, the not-for-profit may negotiate the project’s costs with the designer for a discount.  

In addition to direct pay options and deductions being extended to not-for-profits, the IRA creates grant funding for organizations providing training and education to installers of certain home energy-efficient projects. Moreover, through the Urban and Community Forestry Program, there will be $1.5B of additional funding to plant trees. If not-for-profits are doing these types of activities, they may be able to access the available funding. 

Taking Advantage of the Provisions

Please note the rules are vast and complex and should be done with care. Some of the energy credits that allow for a direct pay option usually start at 6% of a refundable credit (direct pay) on the costs. However, there is a multitude of provisions that will enhance the credits up to 50% or even 70% of the costs. The most notable enhancements are for projects that pay contractors prevailing wages or use qualified apprentices. There is also an optimal timing for the projects to obtain the most incentive for the organization, and phase-outs will occur over time. Therefore, if your not-for-profit is looking to take advantage of these incentives, now is the time to investigate the new provisions.

Partnering with KBKG to Serve You

Clark Nuber partners with KBKG to help determine how much credit you can get back for implementing section 179D in your organization’s structure. While Clark Nuber can assist you in completing general tax and auditing services, our colleagues at KBKG offer educational resources and in-depth reviews of your investments into green efficiency. Check out the KBKG infographic here for more information on 179D Tax Deduction Benefits for Tax Exempt Entities. 

Next Steps

Now that not-for-profit entities have more deduction opportunities relating to sustainability options, it is an ideal time to speak with your advisors to maximize your credits and deductions. Clark Nuber and KBKG partner together to provide you with comprehensive evaluations on sustainability implementation in regard to your taxes. For more information, contact us and KBKG to assist your not-for-profit organization.   

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This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.