Editor’s note: FM Perspectives are industry op-eds. The views expressed are the authors’ and do not necessarily reflect those of Facilities Management Advisor.
It wasn’t long ago that Republicans and Democrats in Congress overwhelmingly supported tax incentives and other economic carrots encouraging investment in homegrown energy industries to boost energy security and affordability.
That bipartisan tradition ended last week—at least for clean energy technologies—as Congress passed and President Trump signed into law a bill that abruptly repeals entire categories of tax law that have been in place, in some form or another, for at least 20 years. The terminated incentives include many that have been driving new investment in green buildings and that were just getting started since they were updated in the Inflation Reduction Act (IRA) of 2022.
The U.S. Green Building Council (USGBC) strongly opposed the repeals. We and our community worked hard in recent months to win improvements in the budget bill, only to see partisanship narrowly win out over practical energy and economic policy, even as many Republicans expressed their concerns about these provisions.
Effects on Tax Incentives
What exactly does the new law do in the green building, climate, and energy space?
First and most important, it ends tax incentives for everything from energy-efficient home construction to electric vehicle (EV) charging infrastructure to on-site solar and wind power. Many of these incentives were originally created in the bipartisan 2005 Energy Policy Act that was signed into law by George W. Bush. They became political targets after they were updated and improved under the IRA. The terminated incentives include the following (though some include exemptions):
- The Sec. 45L tax credit for new home construction (including multifamily projects) terminates on June 30, 2026, meaning that new housing must be completed and sold or leased before that deadline. It was previously set to be available through 2032.
- The Sec. 48E investment tax credit for clean energy projects is terminated specifically for wind and solar, but not for other technologies. The law requires wind and solar projects to start construction within one year of the law’s enactment or be completed and operational by Dec. 31, 2027. It was previously set to be available at least through the early 2030s. Storage and other zero-emissions technologies such as hydropower and nuclear energy maintain eligibility for the credit through 2033, with a phasedown in 2034 and 2035. Additionally, the investment tax credit for geothermal heat pumps remains unchanged and in place through 2034.
- The Sec. 30C credit for alternative vehicle fueling infrastructure, such as EV charging equipment, which had been set to be available for projects placed in service through 2032, now requires projects to be placed into service by June 30, 2026. Other EV incentives for consumers and businesses purchasing or leasing EVs were even more abruptly ended on Sept. 30 of this year.
- The Sec. 179D tax deduction for energy efficiency improvements to commercial buildings, which has still not seen IRA updates fully implemented, requires projects to begin construction by June 30, 2026. This deduction previously was made permanent—with no expiration—in a 2019 appropriations law signed by President Trump.
- The Secs. 25C and 25D tax credits for homeowners making energy efficiency improvements or installing renewable energy systems, such as solar or geothermal heat pumps, requires projects to be placed into service by Dec. 31, 2025.
Across many of the commercial incentives, the new law imposes complex and challenging new rules for demonstrating that a project did not receive investment or influence from “foreign entities of concern,” such as China.
Positive Outcomes
On the tax front, there are a few bright spots. The incentive for investments in geothermal heat pumps used in commercial buildings, which fall under the Sec. 48(a) investment tax credit, is largely unchanged and remains in place through 2034. Significantly, the geothermal heat pump incentive is not subject to the “foreign entities of concern” restrictions. Also, as noted above, investments in energy storage systems in commercial buildings, which fall under the Sec. 48E investment tax credit, remain fully in place for projects starting construction through 2033, with a phasedown in 2034 and 2035.
Additionally, the law maintained “direct pay” and transferability features that allow public and nonprofit entities such as municipalities, churches, universities, and schools to use the incentives for their projects even when they don’t have federal tax liability and that allow businesses to transfer the incentive in exchange for cash.
For low-income communities, the law expands and extends two key tax credit programs supporting private investment in low-income housing and communities:
- The Low-Income Housing Tax Credit (LIHTC), which is the largest federal incentive encouraging creation of affordable housing and provides annual budget authority to states to issue the tax credits, has been significantly expanded. The law permanently increases state allocations by 12% for the 9% LIHTC, which is the larger credit reserved for new construction or substantial rehabilitation. For the 4% LIHTC, which is the smaller credit available for any affordable housing projects as long as they use private activity bonds (PABs) for financing, the required PAB financing threshold is permanently lowered from 50% to 25% of the aggregate land and building costs, enabling more projects to get financed. Altogether, these changes are expected to support the financing of an additional 1.22 million rental homes over the next 10 years.
- The New Markets Tax Credit (NMTC), which encourages private investment in low-income communities and was set to expire at the end of this year, has been made permanent under the law. Under the NMTC program, community development entities such as community development financial institutions, local governments, or nonprofits, apply to the Department of the Treasury to receive tax credit authority. Selected entities then sell their NMTC allocations to investors to use those funds to provide low-cost, flexible financing to qualifying businesses or nonprofits in low-income communities.
Funds to Be Rescinded
While the primary damage for green building policy came in the tax space of the new law, there are also a number of spending clawbacks. The law rescinds unobligated balances for a variety of grant and financing programs created under the IRA, including many that have a strong nexus with our collective work. In some cases, much of the money has already been spent and the programs may be largely unaffected. In other cases, the impact is unclear. Other programs will be effectively wiped out:
- Remaining IRA funding estimated at $421 million by the Congressional Budget Office (CBO) to the General Services Administration (GSA) for low-carbon materials for federal buildings is rescinded. This represents about 20% of the total IRA funding of $2.1 billion.
- Remaining IRA funding estimated at $227 million for GSA emerging and sustainable technologies is rescinded. This represents about 23% of total IRA funding of $975 million.
- Remaining IRA funding estimated at $46 million for the GSA Federal Buildings Fund is rescinded. This represents about 18% of total IRA funding of $250 million.
- IRA funding estimated at $19 million for the Greenhouse Gas Reduction Fund (GGRF) is rescinded, and the statutory provision establishing the program is also repealed. This represents a small fraction of the total $27 billion for the GGRF program, which was almost entirely obligated prior to the end of the Biden administration. Much of the GGRF program is currently in litigation, and it is unclear what impact this provision of the new law will have as the case proceeds.
- Remaining IRA funding estimated at $226 million for environmental product declaration assistance at the U.S. Environmental Protection Agency (EPA) is rescinded. This represents about 90% of total IRA funding of $250 million.
- Remaining IRA funding to the EPA estimated at $92 million for the Climate Pollution Reduction Grant program for local and state governments to develop greenhouse gas air pollution plans and receive implementation grants is rescinded. This represents a small portion of total IRA funding of $5 billion.
- Remaining IRA funding estimated at $70 million to EPA for improved labeling for low-embodied carbon construction materials is rescinded. This represents 70% of total IRA funding of $100 million.
- Remaining IRA funding estimated at $138 million for the Department of Housing and Urban Development’s Green and Resilient Retrofit Program for multifamily housing is rescinded. This represents a small portion of total IRA funding of $1 billion for grants and up to $4 billion in loan authority.
- Remaining IRA funding estimated at $516 million at EPA for environmental and climate justice block grants is rescinded. This represents about 17% of total IRA funding of $3 billion.
USGBC will be reviewing these changes and working to help the building community make the most of the tax incentive programs that are continuing.
While we lost this battle, we will continue fighting for policies and initiatives at the local, state, and federal levels that accelerate our mission of improving buildings and communities. We welcome your input and will be talking with members and ally organizations in the coming months.
Ben Evans is the federal legislative director at the U.S. Green Building Council. This article was originally published on the USGBC website and was republished with permission.