Green Building Tax Incentives and How the Inflation Reduction Act Expanded Them

A guide to how building owners and designers benefit from constructing a more sustainable future

To create more environmentally responsible practices in the construction sector and boost the utilization of energy-efficient materials in commercial and residential buildings, the federal government has implemented a series of Green Building Tax Incentives. These initiatives represent a crucial step in the larger effort to foster sustainable construction practices that help reduce the carbon footprint.

With various Green Building Tax Incentives, like the 179D Energy-Efficient Commercial Building Tax Deduction and 45L Tax Credit, already put in place, building owners and designers can be rewarded for installing energy-efficient systems and environmentally friendly building materials. By doing so, these stakeholders can reap the benefits of constructing facilities that reduce energy consumption and offset higher costs often associated with energy-efficient systems and resources.

Impacts of Green Building Tax Incentives

Green Building Tax Incentives are made up of a diverse spectrum of tax benefits that encompass more than just improving the energy efficiency in buildings, ranging from tax credits for multifamily homebuilders to tax deductions for architects and other designers. These sustainability initiatives were specifically put in place by the government to encourage more participation in green construction tax programs and create a future where more clean energy is produced.  

By implementing more sustainable construction and design practices, building owners and businesses are rewarded with increases in cash flow strictly because of the benefits received from whichever Green Building Tax Incentives programs they participate in. This, as a result, then allows more money to be reinvested in other areas where there may not have been funds to do so otherwise.

How the Inflation Reduction Act Expanded the Benefits of Green Building Tax Incentives

The roots of government-driven green building tax programs trace back to the early 2000s, when the Energy Policy Act was launched in 2005, resulting from policymakers recognizing the urgent need to incentivize sustainable construction practices. While tax policies to drive more green energy were already in place, it was the signing of the Inflation Reduction Act (IRA) in 2022 that cemented the government’s commitment to further make sustainable buildings economically attractive for building owners and designers.  

With the IRA taking effect on January 1, 2023, the benefits of flagship programs, such as the 179D Tax Deduction and the 45L Tax Credit, underwent a significant expansion that made these incentives more attainable. These programs, which had already been instrumental in encouraging the adaptation of energy-efficient building practices, now offered an even more compelling proposition. Eligible projects stood to gain more participants, as the IRA allowed for higher monetary claims, making sustainability a financially rewarding choice for potential candidates. 

179D Energy-Efficient Commercial Building Tax Deduction 

The staple behind tax incentives for commercial buildings, the 179D Tax Deduction now allows eligible parties to claim enhanced deductions for implementing energy-saving technologies and designs in commercial and tax-exempt buildings. This not only translates into immediate cost savings but also promises long-term operational efficiency and reduced expenses on energy consumption. 

45L Tax Credit 

As a benefit that can be worth thousands of dollars for each eligible unit, the 45L Tax Credit has been expanded to promise greater financial benefits for developers and builders of energy-efficient homes. This means that those who adopt green building practices in the residential sector are not only contributing to a more sustainable future but also enjoying increased financial incentives. 

The IRA reshaped the landscape of sustainable construction by amplifying the economic rewards for environmentally conscious projects. By doing so, it sent a clear message that sustainability is not just an ecological imperative. It also reaps financial benefits, too. As the movement for Green Building Tax Incentives continues to gain momentum, the IRA ensures building owners and designers have every reason to prioritize energyefficient and eco-friendly construction and advance the goal of a greener, more sustainable environment.