Last week, New Mexico’s Albuquerque-based chapter of NAIOP — the commercial real estate development association — put the Inflation Reduction Act on the radar of its membership.
A panel of experts, moderated by Dale Dekker, sketched out in conjectural tones some of the opportunities the sprawling piece of legislation is slated to deliver to New Mexico developers.
The Internal Revenue Service has yet to issue a final set of rules that tax accounts and business advisers will use to guide developers through the intricacies of the legislation, but the bottom line is that the federal government has queued up some serious incentives to build with energy efficiency in mind.
In his opening remarks at the Uptown Sheraton, Dekker characterized the Inflation Reduction Act as “a big deal” because of the money at stake — an estimated $2.3 billion available in incentives and grants for New Mexico projects.
The IRA includes $369 billion to tackle climate change with investments in green energy projects. Divide that by the U.S. population and that’s roughly $1,120 per capita. For New Mexico that comes out to $2.332 billion. But for every dollar the federal government makes available, the public and private sector is expected to spend $2-$3, making this “a $10 billion deal for New Mexico,” Dekker said.
For perspective, the governor’s proposed spending plan for the entire state government is $9.4 billion.
Dekker was a natural choice to lead the discussion. Through his architectural firm, Dekker/Perich/Sabatini, he has vast experience in planning “sustainability” projects. He’s also been an evangelist for taking New Mexico’s surplus revenues and making key investments in target industries (identified in the state’s 20-year strategic economic development plan) to attract capital and create jobs.
Earlier this year he met with the Journal Editorial Board advocating for the Legislature to use part of the surplus to invest in STEM education because seven of the target industries in the plan need STEM professionals and a technical workforce.
It’s the “skate to where the puck will be” concept.
New Mexico won’t be able to capitalize on reshoring, intelligent manufacturing, advanced robotics and the 5G revolution without reskilling workers and producing more STEM graduates.
That requires a better alignment of higher education with economic goals.
Regardless of what state lawmakers do, the Inflation Reduction Act is poised to inject some vitality into one of the target industries: sustainability and green energy.
The panel focused on incentives for builders, some of which overlap and align with those aimed at regular consumers. The goal of the bill is to make the most energy-efficient choices more affordable through tax credits and rebates.
Homeowners, for example, can cash in on installing solar panels, purchasing energy-efficient appliances or sealing air leaks.
But the panel discussion took on the wonky language of tax professionals. Monetizing transferable tax credits and expensing capital assets is beyond the ken for most of us.
Panelist Bobbi Kay Nelson, a tax specialist, said developers should take some time to familiarize themselves with the IRA’s benefits.
“You have to be aware that they exist and the hoops that need to be jumped through to achieve deductions and other incentives.”
Nelson explained that the IRA beefed up deductions under IRS Code Section 179D, which encourages builders and owners of commercial buildings to make them as energy efficient as possible. The act also provides tax benefits for nonprofits, though there’s “not a ton of extra guidance” on how that works yet, she said.
Cody Gatland, an energy-efficiency expert who helps builders meet goals to earn sustainability tax credits, said builders of single-family and low-rise multifamily units can earn credits for between $500 and $5,000 per unit by meeting minimum thresholds under the IRA.
But the “stackability” of the credits and deductions is one of the most exciting aspects of the IRA.
On top of a 30% investment tax credit for qualifying projects, developers can earn additional credits or deductions for using prevailing wage labor, apprenticeship labor, American-made steel and aluminum or building green projects in an energy-intense community.
Know your options and reap the benefits.
