The Most Underused Contractor Tax Credits: Understanding 179D Benefits with Bill Harbeson

The Inflation Reduction Act came with a lot of changes to the ways contractors and their clients handle tax credits, manage money and build their businesses.

The IRA bill includes not only new programs, but also adjustments to regulations and extensions around existing benefits like the 179D. Knowing what’s new, what’s changed and what it all means for your business is critical for any contractor wanting to make the most of their money.

In this episode, IDI Distributors’ Ken Allison sits down with Bill Harbeson, CPA and manager at one of the largest accounting and consulting firms in the country, Cherry Bekaert. The two discuss the best ways to use underused contractor tax credits to better reach organizational goals

This podcast will help you better understand underused contractor tax credits and benefits like the 179D credit:

  • 1:59 – What is the 179D tax credit?
  • 8:00 – What’s necessary to qualify for 179D benefits?
  • 21:47 – Who can claim the deduction for the building and how did the Inflation Reduction Act change this?
  • 25:29 – What’s the best “bang for your buck” projects for insulators relating to this deduction?
  • 29:00 – Which buildings are the best targets for this underused contractor tax credit?
  • 30:45 – What if you own your own shop?
  • 37:20  – What is Cherry Baekert’s role in helping contractors with 179D?

Check out our monthly specials if you’re interested in more savings from America’s wholesale insulation supplier.

Podcast Transcript

[00:00:00] Ken Allison
Just like plumbers don’t really do their plumbing. You find the the worst landscaping at a landscapers house. I go in and I see guys with shops that’ll fit trucks in them, and they’re just a metal building. They’re totally uninsulated.

[00:00:19] Intro
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[00:00:59] Ken Allison
Was most of you out there realize there are a bunch of programs coming out with all kinds of incentives and rebates and things like that. And one of the most confusing is the 179 D. So what did we do? We went out and we started talking to 179 D providers, or I should say partners, people that go out and actually help you get that particular rebate. And what I found was many of them just didn’t really want to talk. They wanted to talk about whether or not I had a building over 50,000 square feet. And so that became discouraging until I landed on Cherry Baekert. And what I did, I talked to them and it was a different world. So I asked Bill Harbeson with Cherry Baekert to come on board and talk to us about the 179 D. Bill, thank you for coming on.

[00:01:54] Bill Harbeson
Oh, Ken, thank you so much for having me today.

[00:01:56] Ken Allison
Cool. So from your side then, what is the 179 D?

[00:02:01] Bill Harbeson
So the 179 D, the full name is the Energy Efficient Commercial Building Deduction. It was introduced in 2005 as part of the Energy Policy Act, both 179 D as well as 45 L, which is a similar credit for residential buildings. 179 D was introduced again in 2005, took and it was enacted in 2006. And it is a way to encourage building owners to design and construct energy efficient commercial buildings, commercial building being anything that is not residential. So in the eyes of the IRS for these purposes, there are two different kinds of buildings residential and commercial. 179 D address is commercial. So commercial can be a warehouse, an office building, a hospital, a school, anything that’s not a house.

[00:02:55] Ken Allison
I have to say, though, you gave one of the most golden lines I’ve ever heard. And that was when I asked you the first time I talked to you, what’s the 179 D? Do you remember what your answer was? The most underused tax credit ever.

[00:03:12] Bill Harbeson
Right, Yes. To based off of all of our research, as little as 5% of the eligible buildings actually claim a one in 179 D deduction.

[00:03:23] Ken Allison
I want to I want you to say that again. So what you’re saying is 95% of the buildings that could get one aren’t taking it.

[00:03:32] Bill Harbeson
Based on some estimations that we received. Yes. And there’s a number of reasons for that. Sometimes a building owner, they just don’t feel like it’s going to impact their taxes in a positive way. And, look, it is not the perfect solution every single time. So there’s some times where they’ll believe that deduction on the table. If I’m a building owner and I’m going to sell my building quickly 179 D is a form of accelerated depreciation. So you would be – that would affect a future sale of the property. However, as you can tell, it was originally introduced as an incentive for building owners, however, and I think that’s what we’re going to spend some time talking about today. In 2008, a lot happened, right? Not only did the economy collapse, but particularly hard hit where members of the AEC, industry, architecture, engineers, construction. So as a way to both encourage more energy efficient design and construction, but also help bolster the AEC industry, which was going through some tough times back then. I was I was in the industry back then. They expanded the 179 D incentive to include government owned facilities. So a high school district, for instance, they don’t pay taxes well, they can allocate a deduction, A 179 D deduction to an eligible taxpayer that’s worked on their building. And that is the majority of the 179 D deductions that are taken today are done through that mechanism.

[00:05:17] Ken Allison
What you’re saying is a lot of the non-profits, government buildings, things like that, they’re using that money to pay for contracting they otherwise probably would not have done.

[00:05:30] Bill Harbeson
Uh, not quite so this is a common misunderstanding when we talk to the building owners is the government owners, whether it’s a school district, whether it’s a college, whether it’s a local government, they are not spending a nickel on these studies. They are not signing checks going to these eligible taxpayers. These are federal dollars coming straight from the Treasury. So it is a tax deduction which could generate a refund. So the advantage of this program is that when we go and ask the government owner of a particular building for a deduction or an allocation for a deduction. They’re not out any money. So it’s a pretty easy ask for us usually. If not kind of a longer request, just because it’s a matter of educating them as well. So the positive thing that the government owner is getting from this is they’re getting an energy efficient design, energy efficient construction. They’re bolstering their local communities by putting those tax dollars back in the hands of these contractors and engineers, things like that in the local areas. But also they’re getting an energy study. So they’re able to go and say based off of the work that we paid for this building, we save this many dollars in energy usage. Let’s go use this to ask for more money. So it can be a real big advantage for the government owners as well. But chiefly they’re not out any money by doing this, which is a real positive thing and it helps the program kind of stay afloat.

[00:07:13] Ken Allison
And in the end, that pays the contractor for the work. Is that correct?

[00:07:17] Bill Harbeson
Yeah, absolutely right. The deduction is for the taxpayer, the people doing the work on these buildings, the design and construction, that’s who it was meant for. I’ve heard an expert say that if the government wanted these building owners to have that money, it would have given it to them. So the full intent is that it goes straight to the taxpayers.

[00:07:44] Ken Allison
Now, when you say taxpayer, though, we’re talking about the contractor, the contractors getting paid.

[00:07:48] Bill Harbeson
That’s correct. Yes, they’re taking advantage of a tax deduction, which can often generate a tax refund, but ultimately will lower their tax liability.

[00:08:01] Ken Allison
In the beginning, I was told that only buildings, 50,000 square feet and up would qualify. When I was talking to you, now that we have – well, so let’s back up. The old one 179 D was up to a dollar 80 a square foot.

[00:08:18] Bill Harbeson
That’s correct.

[00:08:19] Ken Allison
And really in my industry, only $0.60 a square foot would cover the building envelope.

[00:08:24] Bill Harbeson
That’s correct.

[00:08:25] Ken Allison
Now we’re looking at up to $5, depending on what happens with the building and prevailing wage and all of that, my question is on that number of 50,000 square feet. Is that really what’s necessary to qualify? Or if I make a big difference on a 5,000 square foot building, is that worthwhile? Because I know your firm still has to be paid to show that what we did made that much of a difference?

[00:08:53] Bill Harbeson
Right. Ken, you’re touching a lot of very important points kind of surrounding this, which is one thing is that the deduction must be certified by a third party. It’s in the tax code. You can’t do it yourself as a taxpayer that wants to take the deduction. You have to go out and hire somebody like Cherry Beckert to do the study for you. So there are costs involved no matter how you want to cut it up. That being said, a 50,000 square foot cut off is something that I’ve heard before, but it’s not one that I agree with. There is no minimum building size to take advantage of once in that deduction. However, as costs do get incurred, there could be a reduction of the EROY once you get to a smaller building size. That being said, I would encourage anybody that’s interested in the 179 D program. Do not self-censor. Don’t say, “Oh, this is a small building, we’re not going to mess with it”. Reach out to a trusted provider, someone that’s in your area or someone that’s got a national presence like Cherry Baekert and let them tell you what the return on investment would be for you. Just to give an example with this new, and I do want to talk about it quite a bit here, the Inflation Reduction Act. Expanding the deduction to be $5 per square foot. Well, even a 5000 square foot building, that’s a $25,000 tax deduction for an eligible taxpayer and shoot for $25,000 I’d certainly look into it. So, long story short, there’s no minimum. There are things like the inspection costs and things like that have to be considered by the taxpayer, by the interested party. But that’s something that a good one, certainly, and deep provider is going to help you make a decision for or with. So especially now with the new provisions for the Inflation Reduction Act, I haven’t come across a building that was too small yet. So take that as you will.

[00:10:57] Ken Allison
Perfect, so what you guys are actually doing, you’re doing the energy modeling for what’s to be done or what’s already been done?

[00:11:06] Bill Harbeson
Both. So for a company that’s working on a government owned building and they’re seeking an allocation from the government owner, the deduction will be placed on the tax return of the year in which the project was placed into service. So let’s say you finished building a brand new high school last year in 2021. We do an analysis for you, generates a deduction, you would put that on your 2021 tax return. If you’ve already filed your taxes for 2021, you would amend that return to claim that deduction for refund. Now, for future work, we can absolutely take a look at your project. Look at take a look at your design. And hey, we can we can let you know pretty easily, or not easily, but pretty quickly if a deduction would be available based off of the existing design. And if it’s not, you could go back and make adjustments as needed so we can model future tense and something that Cherry Baekert does is a gratis review of a design or a piece of construction. And unless, you know, if we think a deduction would be available for it. So I would encourage you to reach out early and often so you’ve got a future project we can help you tax plan for it, help let you know if there’s going to be a deduction available, etc., and then ultimately help pursue it for you.

[00:12:30] Ken Allison
If I’m doing, let’s say I get contacted by a local microbrewery and they want to take advantage of this. I can reach out to you as I’m designing the scope of work and you can give me an idea whether or not it looks like we’re there or if more measures might need to be taken or if we’re all the way in.

[00:12:57] Bill Harbeson
Absolutely. What we cannot do at Cherry Baekert is say, “okay, your design won’t meet the threshold, so go make these changes. As soon as we do that, we become part of the design party and then we lose our third party status”. What we can do is say “this will or will not meet the requirements. If not, these are the deficiencies” and then you can adjust if you want. But we can absolutely do that with you. And for a building owner such as, say, a microbrewery or a commercial space, they want to claim these 179 D deductions and a contractor can help them claim them. Yeah, let us let us take a look at it early up front before you get too far into the process.

[00:13:41] Ken Allison
I read that qualifying is based on ASHRAE 90.1. Can you speak to that a little bit?

[00:13:49] Bill Harbeson
Some fantastic updates that happened as part of the Inflation Reduction Act 2022 just passed in August. You already mentioned probably the biggest one, which is the expansion in to a maximum of $5 per square foot. That is also brought on some additional changes on how the deduction is ultimately calculated, and that is based around an energy model of ASHRAE 90.1. ASHRAE 90.1 is kind of the Bible on how to do an energy analysis for a commercial space. ASHRAE 90.2 would be for residences. So the updates that happened in 2022, which will take effect January one of 2023, are updates that a building will be checked against the ASHRAE 90.1 standard four years prior to that building being placed into service. So it’s the closest. So the 90.1 gets updated every three years. If I’ve got a project placed into service in, say, 2024, I will go to the closest ASHRAE standards four years prior. That being said the, as part of the program, the one Sunday program the secretary of the Treasury has to approve and promulgate an ashtray standard which can be applied for a 179 D analysis. What that means is that one has not been approved and promulgated by the Secretary of the Treasury since 2007. So right now, any 179 D model that we would do for you right now would be compared to ASHRAE 90.1 of 2007.

[00:15:36] Ken Allison

[00:15:37] Bill Harbeson
So quite an old standard right now that will change, that will update. We will get a new standard. My guess is they will update it to either 2016 or maybe even 2019 but I’m going to guess 2016 based off of previous updates. So still an older standard compared to what buildings are being built to today. What’s going to happen is we’re going to take two models. We’re going to build the building as it exists today following its upgrades, renovations, or if it’s a new construction. And then we’ll build the exact same building using our modeling software and compare it to as though that building were built in 2007. Compare the energy consumption year over year, or excuse me, energy costs year over year. And depending on the thresholds that are met, you can qualify for reduction. So in 2023, that would be a sliding scale starting at 25% energy cost savings all the way up to 50% at $0.02 per square foot. Which equals between $0.50 and a dollar per square foot of available deduction. We mentioned prevailing wage and apprenticeship requirements. If certain prevailing wage and apprenticeship requirements are met, that $0.50 to a dollar goes to $2.50 to $5 per square foot. So a huge jump if you meet those requirements.

[00:17:07] Ken Allison
That’s a massive incentive to pay prevailing.

[00:17:10] Bill Harbeson
Wage. That’s correct. Absolutely. And that’s what Congress had in mind when they passed these this legislation. They put a lot of incentives. They connected a lot of incentives to these prevailing wages and to these apprenticeship requirements. Now, Ken, I will tell you that just like updating ASHRAE standard, while Congress has required that these programs will adhere to prevailing wage and apprenticeship requirements, the Secretary of the Treasury has not yet themselves finalized the requirements, documentation requirements, promulgated everything. Anything in process right now and up until that, they do approve those prevailing wage requirements, they will not be in effect. So if I’m at a project, regardless of paying prevailing wage or not placed into service in 2023, I can automatically get that $5 per square foot provided that we hit the energy thresholds.

[00:18:10] Ken Allison
So it’s going to be quite a lot of fruit on the ground in early 2023 until this new updated prevailing wage standard comes in.

[00:18:21] Bill Harbeson
That’s correct. And any project that’s in process when it when it comes into effect will be grandfathered in. So I estimate and I spoke to the partner in our practice this morning about it, we estimate that it’s going to be as late as July before those requirements actually get put down on paper and are enforced.

[00:18:41] Ken Allison
So if I’m in central Nebraska somewhere where wages are low and things like that, if I go out, pay a decent wage, get projects started, get them sold, get something going on the ground prior to the passing of that, which may be July, then all of that qualifies for the up to $5 a square foot, depending on where I come in against ASHRAE.

[00:19:06] Bill Harbeson
That’s correct.

[00:19:08] Ken Allison
Then when we look at that money break down $5 a square foot versus $1 a square foot, that’s pretty substantial. But even the $2.50 versus $5 or the $0.50 versus a $1. So those rules that I’m looking at – at 25% better than the standard building envelope, that’s kind of where I’m beginning to qualify. Is that correct?

[00:19:38] Bill Harbeson
Yes and no. So, yes, 25% is the minimum qualifying threshold. At 25%, you get $2.50 per square foot provided of course, that the prevailing wage requirements are met. So the minimum available deduction is larger than the largest available deduction even a year ago. So quite a substantial change and obviously a quite a bit lower of a threshold to qualify down to $0.25 from, excuse me, 25%, down from 50%. Now, can I I’ll tell you and speaking to building envelope specialists, one of the changes made with the modeling process is that we can no longer look at a per system analysis. So the partial deduction for building envelope, interior lighting and HVAC will go away starting in 2023. We must review the entire building as it exists, understanding that older HVAC equipment could pull building back, etc. is why that they dropped the minimum threshold to 25%. But we must model the entire building as it exists.

[00:20:51] Ken Allison
That makes perfect sense. I might want to grab a few LED light bulbs while I’m out there insulating. Just too …

[00:20:57] Bill Harbeson
Absolutely. And it’s kind of act as an energy service provider. Say, hey, while we’re at it, we’ll save you $5,000 a year. Let us install these light bulbs for you. So let’s take a look at it. Absolutely.

[00:21:11] Ken Allison
Well, and I would see where this would make me want to work with one of the local mechanical contractors so that if there’s enough left in the rebate where they automatically get their mechanical system replaced, maybe I get the mechanical contractor because they’re going to get the work that I provided. Maybe I have them cover the Cherry Baekert fee so that I wind up getting all of my side and they get a healthy part of their side. Who knows how all that works out? I don’t know if there’s rules around that or anything.

[00:21:47] Bill Harbeson
For a building owner, and if I’m a commercial building, a private commercial building owner or a for-profit store factor or something like that, I’m the only one who can claim that deduction for that building. However, for buildings that are government owned and recently with the Inflation Reduction Act of 2022, expanding that to be any tax exempt entity so nonprofit hospitals, private schools, churches, any 501 C3, they can also now allocate these deductions. In the instance where I’m pursuing a deduction for one of these tax exempt entities, there is language in the section 179 D that allows for multiple qualified parties to pursue a deduction and split it amongst themselves. Well, not quite. For the government or the nonprofit, excuse me, yeah, nonprofit owner to decide to whom and to how much they want to allocate. So if there’s four people requesting a piece of the deduction, let’s say the mechanical engineer, the electrical engineer or the architect, how many other qualified people pursuing the deduction come to the table? The owner can decide to split evenly amongst them or maybe wait a little bit more for one party versus the other. It’s up to them but there are provisions to allow for the sharing of the deduction.

[00:23:09] Ken Allison
Perfect that that answers a lot, actually. That helps. So when you look at the envelope, just in terms of what you’ve seen in the past, what work most commonly moves the needles or qualifies. Is it the air sealing? What do you see in your modeling that typically gets the biggest bang for the effort?

[00:23:33] Bill Harbeson
Well, I’ll tell you, the easiest to get across the line every single time is new construction. Anything built to modern building standards is going to beat that ASHRAE 2007. So that’s the short answer right there. However, if I’m if I’m doing renovations, if I’m doing retrofits, things like that, components of the building that are easily replaced are tend to be also the ones that that push the needle the fastest. So curtain wall for instance models very well it’s very easy to calculate an energy savings using low or inflated glass curtain wall. But as you know, that’s not an easy fix or an easy upgrade to make to a building. So what I would say is focus on things like the roof. What components are the roof made out of? Is the roof reflectance? Does it have the two inch insulation? Is there an air barrier, things like that, because roofs get replaced quite a bit or repaired quite a bit, there’s a lot of things that can be done to a roof to increase the energy efficiency. The one caveat that can is that the taller the building gets, the less the roof becomes a factor. As you as you probably know. Right. A roof on a single story, 100,000 square foot building is going to make up more of the envelope than a ten story, 100,000 square foot building. So one thing to keep in mind, but again, I would say we spend a lot of time looking at roof systems.

[00:25:06] Ken Allison
So we’ve got a lot of guys that foam a roof deck from the inside though, and you’ll see it drop the energy bill in some cases to half or less. They’ll go in the air seal, maybe they drop it down to three air changes and we still have dock doors. So what I’m looking at how, thinking in terms of a building envelope person or insulator, what’s their best bang for the buck? What projects do you see out there that maybe are tailored for them?

[00:25:37] Bill Harbeson
The projects that always get our ears kind of picked up our energy upgrades. Not just the insulation got wet or we have storm damage. It’s the owner along with the installer, the contractors are developing a plan to save energy. So the especially in the insulation world, it’s pretty straightforward. The materials that we can use, maybe instead of ­- maybe we use R-30, right, which is above and beyond most building codes today is like R-30 insulation. Maybe we’re going to use that, upgrade the insulation and we’ll pay for it with the help of the 179 D deduction. Any, any situation where a party is working to create a plan to reduce the energy efficiency, or excuse me, the energy consumption versus just damage repair, things like that. The insulation gets old and we put in like – we just replace it in time. Yeah, we’ll get some movement out of there but it’s the projects where they’re working with, say, an energy service provider to help put together a plan to actually save energy dollars.

[00:26:49] Ken Allison
Realistically, if I’m taking a building from 12 air changes down to 3.

[00:25:57] Bill Harbeson

[00:26:58] Ken Allison
That’s going to be big.

[00:26:59] Bill Harbeson
Yeah, absolutely. The envelope in the in the scheme of energy modeling, the envelope makes up a fairly small component of the things that are considered. In that an energy efficient building, it’s, and again this is just from the framework of ASHRAE 90.1, the envelopes considered it makes it makes it about 20% of the analysis. So if you can reduce the energy consumption just with those changes to the envelope, then you’re going to qualify most times. Especially with that reduction in the threshold down to 25%. We haven’t – it’s the updates to everything have been fairly new only in the past couple of months but we have not had a project yet that didn’t cross the line in some way, maybe not the maximum every time, but the models have been performing really well.

[00:27:58] Ken Allison
You haven’t had one that didn’t qualify. That’s outstanding.

[00:28:03] Bill Harbeson

[00:28:04] Ken Allison
So at what step in the process should they get you involved? Should they be reaching out in advance before they go out and bust open the project?

[00:28:13] Bill Harbeson
Absolutely. So if you’ve got a completed design or if you’ve got a request for proposal or request for a quote from a party, from a building owner, and they say “we want to cut energy costs by this much” or “we want, yeah, we want a proposal on how to cut energy costs”, bring us that information, show us what you’ve got, what your ideas are for it, and we’ll let you know as it integrates into the rest of the project if it’s going to make a meaningful change from the point of view of a 179 D model. So you as I mentioned earlier, we perform those upfront reviews gratis we’ll let you know. And again, it’s a fairly high level analysis, but we’ll give you an idea if it’s going to be close or not. And then after that, we can actually perform the analysis if you became engaged with this.

[00:29:06] Ken Allison
So in your time of doing these, what type of buildings seem to be the best targets? Are there any out there that just seem to win every time, or is it just all across the board?

[00:29:19] Bill Harbeson
New construction, I mean, and Ken you’ve been doing this a while, the newer buildings just in the past few years, the incredible advancements that have been made in the areas of energy efficiency, the near 100% adoption of LEDs, for instance, the widespread adoption of digital controls for HVAC systems, insulated glass windows, four envelope just in the past, not even ten years, maybe five, six, seven years have been huge for any kind of building, whether it’s a hospital, whether it’s a high school, church, things like that. I will tell you that there is a sweet spot, two sweet spots, very small buildings tend to yield good ones 179 D performance and very large buildings tend to. And that’s kind of part of the dark magic with modeling that I’m not 100% comfortable with the nomenclature. But there’s a there’s a kind of group in the middle there of about a few hundred thousand square feet that they’re a little bit harder to calculate a deduction for. So if I’m doing a project and it’s a real small building or again, a real large one and I’m talking four or five, 600,000 square feet where there’s a central plant, those tend to perform pretty well, provided of course, that the equipment’s up to date.

[00:30:45] Ken Allison
So you brought up building owners as the greatest benefactors. And I will tell you, most of ours probably will be retrofit. But, you know, and not knocking new construction, they still go out and do it. But there’s there is less envelope work on those.

[00:31:02] Bill Harbeson

[00:31:03] Ken Allison
But you brought up building owners. And I would say most of our contractors own a building. What would you tell them about their own shops?

[00:31:13] Bill Harbeson
Right. Well, can I – I would go into it assuming that they’re pretty well insulated. I would hope so. As I mentioned in the very beginning of our conversation that this was originally intended for commercial building owners. So if you have a warehouse, a prefab facility, something like that, office space, obviously, that you own, even under its own LLC, you likely do qualify for some form of 179 D deduction, especially if it’s a newer building, especially if you’ve done any kind of upgrades to the building over the past few years. So if you are interested in recouping some costs on a recent project, maybe you just rebuilt your warehouse or expanded it, something like that, 179 D almost always will be eligible for you. Provided of course that is going to put you in a positive tax position that we were talking about earlier.

[00:32:06] Ken Allison
You brought up building owners being the greatest benefactors, just like plumbers don’t really do their plumbing. You find the worst landscaping at a landscapers house. I go in and I see guys with shops that’ll fit trucks in them

[00:32:26] Bill Harbeson

[00:32:27] Ken Allison
And they’re just a metal building. They’re totally uninsulated. And so that’s why I was thinking, you know, our contractors could benefit from this.

[00:32:35] Bill Harbeson
Right, Right. Man, maybe you’re up in the Midwest and it’s Ohio and you guys are getting pretty cold, you know? Insulate the building, get them some comfort and you can claim a 179 D deduction and recoup a good bit of the cost. Again, up to $5 per square foot, which goes a long way to offset installation costs. I will say that in my experience, like warehouses, they tend to qualify pretty well because the energy consumption is very low in them. Even up north, they’ll have unit heaters just enough to keep the facility above freezing. The lighting is fairly sparse, bright enough to work in, but it’s not a hospital. And for that reason the energy consumption is pretty low. So if you’re doing some kind of upgrades to building, again new construction, let’s say you put a new unit here or something like that, it could be a eligible to receive a deduction. Even if you don’t think of it like a very efficient facility, you haven’t put in the latest HVAC or something like that.

[00:33:34] Ken Allison
Nice. I like that. So let’s talk a little bit about the 45 L then. What’s changing on the 45?

[00:33:40] Bill Harbeson
So as I mentioned earlier, 45 L is the kind of residential half of the energy incentives. So if it is not a commercial space, it’s a residence. So 45 L has gone through some fantastic, very exciting changes here in the past, just a couple of months along with 179 D. So starting in 2023, an eligible qualified residents may receive up to $5,000 credit per unit. So for single family home, for a manufactured home, that’s $5,000 per unit. For an apartment building that is $5,000 per apartment or condo or what have you. So if you are constructing, building, you own if you’re renting, whatever, a 20 unit building. Do the math pretty quickly, it’s a very large credit. And again, I’ll say that it’s a credit versus a deduction. So the 45 L credit is a dollar for dollar reduction in tax liability. So that adds up very, very quickly. The qualifications are a little bit different. Unlike comparing it to ASHRAE, it’s more of a checklist that’s starting in 2023 and eligible building will meet all of the Energy Star requirements at the national and local level. And to get a bonus credit to get up to that $5,000, you will meet those requirements plus the new Zero Energy Ready Home program, which is a house that is built to accept renewable energy. Doesn’t necessarily have to run off of renewable energy, but it has to be able to accept it. So, for instance, your roof is sturdy enough to hold up solar panels that there’s not significant shade over your roof. So if you did put solar panels on there, they could run on the house off of it, things like that. Again, you do not need to have that equipment installed, but it does need to be ready to install to get that $5,000. So if you are the developer, owner, etc. of one of these energy efficient homes, the credit available to you is massive compared to years past.

[00:35:54] Ken Allison
That’s great. $2,500 for meeting Energy Star, $5,000 for net zero Ready or NZE. I know that there was the changes but for the guys listening today that worked on houses this last year they also instituted can’t they go back and get money for the projects they did in 2022 provided they meet the standards that existed then?

[00:36:20] Bill Harbeson
Absolutely. So 45 L did lapse for a period, but part of the Inflation Reduction Act not only expanded it, but also extended it retroactively. So 2022 projects are back on the menu. It will be – they will be compared to the older standard, I think it’s the 2006 IGCC is what it is. So if you beat that by 50%, you get up to $2,000 per unit. That’s for houses placed into service 2022 and prior.

[00:36:49] Ken Allison
45 L as well, if I’m doing multifamily, that also kicks back in. The prevailing wage is that correct?

[00:36:57] Bill Harbeson
Yes, with the same asterisks that I mentioned before, which is at this time that has not been finalized, promulgated, etc. by the secretary. So any project that’s in process right now would be grandfathered in. But yes, eventually a multifamily unit will need to meet those requirements if they want to hit that $5,000 per unit maximum.

[00:37:16] Ken Allison
Give me a little background. Why would Jerry be involved in this? What’s your guys part?

[00:37:23] Bill Harbeson
Well, so Cherry Bekaert been around for about 75 years. In fact, we’re celebrating our 75th anniversary this year, and we are primarily a CPA firm that we offer a wide range of financial services that address probably just about any industry that you can think of. And a major component of our business are companies that make up members of the construction industry, real estate, architecture, engineering, things like that. So getting into energy efficient commercial deductions, credits such as cost, segregation, things like that, it’s an easy move for a company like Cherry Bekaert and something that I’ve always liked about them since starting is that they always explore different ways to serve their clients in addition to just the core tax duties that they perform for them. So they’ve made a concerted effort over the past few years to bring as much talent and knowledge in these different spheres, not only with 179 D, but also things like the research and development tax credit. Recently, the employee retention credit has been a big part of what Cherry Bekaert has been able to bring to the table for clients and potential clients. So that’s really, to summit up, Sherry Becker is always looking for ways to make things better for our clients and for our potential clients.

[00:38:56] Ken Allison
What is the best way then for our contractors to reach out and get a hold of you when they have a project?

[00:39:03] Bill Harbeson
Well, I personally am available at any time to feel these kind of questions. I can be reached by email, I think you provide it as part of the outreach for this but it’s [email protected] and it’s all I do is education and awareness on these kind of projects. I’ll work with you to review your work, whether it’s past or present and let you know if we think the deduction or credit be a good fit for you.

[00:39:37] Ken Allison
Awesome. By the way, thank Cherry Bekaert for not making us spell out their email in order to do that. I like that at I’m really thrilled about that.

[00:39:50] Bill Harbeson
So absolutely, it gets a little tricky when you got to spell out all five words, so very CBH convenient. So my name’s not super easy, so I wish it was like Ben Smith or something. That would be very easy.

[00:40:04] Ken Allison
But maybe we can get you an alias.

[00:40:07] Bill Harbeson
Maybe. Yeah. If I get enough people reaching out to me, I can probably get our Director of Operations to give me a one name like Cher or something like that.

[00:40:16] Ken Allison
Cher at Cherry Bekaert or at CBH. Sorry. There we go.

[00:40:19] Bill Harbeson
That’s right.

[00:40:20] Ken Allison
Well, Bill, thank you so much for going through this and adding a lot of light to the 179 D subject. Hopefully, maybe we can put together a workshop piece or something like that to add to the website coming up next year. But as things roll out, we probably will likely reach out to you again and maybe even show an example model sometime in a video.

[00:40:47] Bill Harbeson
Oh man, that’d be fantastic. Yeah, it’s a great idea. Well, I cannot thank you enough for having me today. As I mentioned, this is this is my job and getting the opportunity to talk about this is a big part of my day and a big part of my week. So excited to do it for you.

[00:41:03] Ken Allison
Awesome. Well, thanks so much to all of you for listening to the R Value podcast today. Again, we are trying to do these things for you. If there’s any subject you would like us to cover, please reach out. You can reach out to your local branch, reach out to those of the corporate office where we look forward to earning your business every day.

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