T
he Inflation Reduction Act (IRA), signed into law over two years ago, was hailed as a crucial tool to encourage and offset the cost of green buildings in the real estate industry. The tax incentives it offers provide significant opportunities for owners and developers to reduce expenditures during a time when interest rates and construction costs are high. However, navigating these incentives has proven challenging, and experts aim to raise awareness about their benefits and common obstacles.

    During New York Climate Week, a panel discussion focused on the IRA's implications for the real estate sector. Moderated by Marta Schantz of ULI, the panel included Ben Evans from the USGBC, Molly Dee Ramasamy from Jaros, Baum & Bolles, Danielle Spiegel-Feld from Hines, and Zach Allen from the Michaels Organization.

    The IRA represents the largest climate investment in U.S. history, aiming to reduce greenhouse gas emissions by 40% by 2030. The tax incentives it offers are designed to encourage green building practices, with four primary programs: 45L for energy-efficient homes, 179D for commercial buildings, Section 48 for renewable energy upgrades, and the Alternative Fuel Vehicle Refueling Property Credit.

    Despite these opportunities, challenges remain in understanding and utilizing the IRA's incentives. The panelists agreed that many people in the real estate industry are unaware of the ins and outs of the incentives, and that participants can take advantage of multiple tax credits simultaneously. However, making a big commitment to install green systems without knowing if a deduction will be rewarded after a year in operation can cause stress for owners.

    At Hines, Spiegel-Feld finds that IRA tax incentives pencil out most in large-scale projects, while at the Michaels Organization, Allen faces challenges connecting the dots between monetizing and taking advantage of IRA tax incentives due to other subsidies. Evans acknowledged that the bill is not perfect but makes sustainable development easier, despite its limitations.

    The IRA's impact on the real estate industry will be significant, especially with high costs and elevated interest rates. As experts continue to navigate the challenges and opportunities presented by this legislation, raising awareness about its benefits and common obstacles will be crucial for unlocking its full potential.