November 2023 Volume 5

ENERGY

Tax Opportunities in the Climate Law By Omar S. Nashashibi

While speaking at several manufacturing conferences late last year, I told attendees that they should fire their CPA if they could not find a way to save or make money after three major bills became law: the Infrastructure Investment and Jobs Act (IIJA or infrastructure law), the CHIPS and Science Act (CHIPS or Semiconductor bill), or Inflation Reduction Act (IRA or climate law). One year later, let us look at where opportunities stand for forgers and other manufacturers to bring home a piece of the billions in government support available under the climate law President Biden signed on August 16, 2022. I suggest looking at federal government funding opportunities through four pillars: the product you manufacture, the process by which you manufacture it, its end use, and the facility in which you are manufacturing that product. Then there is the type of funding to consider: tax incentive, grant, or loan. Some of these come with enhancements that increase the credit and deduction amounts for paying workers the local prevailing wage for work on facility construction and for hiring workers from a registered apprenticeship program. While I am not a CPA or financial advisor, I do encourage manufacturers to explore the potential opportunities identified by consulting a professional and learning more by exploring on their own some of the opportunities identified. Any descriptions of the tax incentives in quotations are taken directly from the IRS, or Departments of Treasury or Energy. Having worked for manufacturers since 2002, I find that starting with a familiar tax provision helps businesses understand the

opportunities and the Section 179D energy efficient commercial buildings deduction is a prime example of how the climate law modified or created nearly two dozen tax provisions. Most manufacturers use the Section 179 small business deduction provision when purchasing depreciable equipment and other assets. Effective January 1, 2023, the IRA expanded a related subsection, 179D, to allow commercial building owners to improve their energy efficiency by deducting the cost of new interior lighting systems; the heating, cooling, ventilation, and hot water systems; or the building envelope if the installation reduces the total annual energy and power costs by 25 percent (https://www.irs.gov/pub/irs-pdf/p5817g. pdf). To assist businesses of all sizes in having a better understanding of opportunities available, the IRS in October 2023 released a one page summary listing many of the new changes (https://www.irs. gov/pub/irs-pdf/p5817g.pdf). Among those listed is the Section 45X Advanced Manufacturing Production Credit “for domestic clean energy manufacturing of components including solar and wind energy, inverters, battery components, and critical materials.” The details on 45X are important as only products listed in the text are eligible for the credit and it varies such as $2.28 per kg for solar structural fasteners or $.02 for a wind blade. This credit is earned over time as opposed to a one-time credit. An upfront credit that has drawn interest is an expansion of Section 48C, the Advanced Energy Project Credit, that now includes projects, “which reequips an industrial manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least

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