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Inflation Reduction Act benefits for tax-exempt healthcare organizations

Feb 26, 2023

The Inflation Reduction Act (IRA) represents one of the most significant pieces of legislation to address climate change. Although many of the clean energy provisions have already been implemented, the IRA now provides additional ways for tax-exempt healthcare organizations to benefit from these rules.

Before the IRA was enacted, if tax-exempt organizations wanted to take advantage of credits and benefits, they had to navigate complex structural changes or use tax credit markets. And many lacked sufficient unrelated business income tax liabilities to take advantage of credits or deductions that could be earned from clean energy improvements. With the passage of the IRA, that has changed.

Now the IRA allows a direct pay option for tax-exempt organizations. This means that a tax-exempt organization can elect to receive some of the IRA tax credits in the form of direct payments.

Here are the IRA tax credits and refundable deductions that tax-exempt healthcare organizations can benefit from:

New commercial clean vehicle credit

Tax-exempt organizations that buy a qualified commercial clean vehicle may qualify for a clean vehicle tax credit. The maximum credit is $7,500 for qualified vehicles with a gross vehicle weight rating of under 14,000 pounds and $40,000 for larger vehicles.

Organizations could benefit by using qualified vehicles for patient transportation and courier activities. The credit could also potentially include ambulances or other vehicles that are used in the day-to-day operations of the healthcare facility.

New advanced manufacturing production tax credit

This new tax credit relates to investments in the production of clean energy technology components. This includes things such as solar components, wind turbines and offshore wind components.

To qualify, tax-exempt healthcare organizations can implement renewable energy projects to increase electricity capacity. This credit provides a direct payment for 30% to 50% of the cost of the project.

Below is a list of additional credits where the direct pay option is available:

  • Extension of alternative fuel refueling property tax credit 30C
  • Extension of renewable electricity production tax credit 45
  • Carbon capture and sequestration tax credit 45Q
  • Nuclear power production tax credit 45U
  • New clean hydrogen production tax credit 45V
  • New clean electricity production tax credit 45Y
  • New clean fuel production credit 45Z
  • Extension of energy investment tax credit 48
  • Advanced energy project credit 48C
  • New clean electricity investment tax credit 48E

Energy-efficient commercial property

This tax deduction, known as the 179D deduction, has been greatly enhanced and can now benefit tax-exempt healthcare organizations. It applies to the energy efficiency of new construction or significant renovations of a building.

Here are some of the enhancements:

  • The maximum deduction is increased from the current maximum of $1.88 per square foot to a possible $5.00 per square foot. To obtain the maximum deduction, organizations need to satisfy new prevailing wage and apprenticeship requirements.
  • Projects must reduce a building’s energy use by 25% (versus 50%) or more.
  • Tax-exempt organizations are now able to assign the deduction to design build contractors, architects, engineers and more.

Therefore, organizations may be able to reduce their costs for energy-efficient commercial buildings by assigning the deduction to designers of the project.

How Wipfli can help

Let Wipfli help your tax-exempt healthcare organization get more from tax planning. Our tax advisors can help you navigate the complex requirements of the IRA to maximize your available benefits. We also stay informed, so that as the IRS releases new IRA provisions, we can offer crucial guidance.

Contact us for more on how we can support your organization.

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Wipfli Editorial Team