Articles

Inflation Reduction Act Insights for Community Associations

by Jenny Templin, CMCA, AMS - Neighborhood Management, LLC

On August 8, 2022, the U.S. Senate passed bill H.R. 5376, which is also known as the Inflation Reduction Act of 2022 (IRA).  President Biden signed the bill into law on August 16, 2022.  The IRA is a simplified version of President Biden’s Build Back Better Bill that was introduced earlier in his term. The bill aims to ease the current financial burdens on American families in several ways.  One way it means to do so is in the form of three tax credits that homeowners can and should utilize if they meet the requirements.

The first credit is the Energy Efficient Home Improvement Credit.  This credit will reimburse homeowners 30% of their initial investment when they make qualified energy efficiency improvements.  Windows and exterior doors that meet Energy Star requirements are examples of qualified improvements.  Insulation that meets the criteria from the International Energy Conservation Code also qualifies as an improvement worthy of receiving a tax credit.  When homeowners switch appliances in their homes to energy-efficient versions, they will qualify for this credit as well.  Some examples of appliance changes include replacing an electric furnace with a high-efficiency heat pump, using a smart thermostat, LED lighting, and replacing an electric water heater with a heat pump water heater.

The second tax credit is the Residential Clean Energy Credit which applies to solar panels/roofs.  Owners who replace their roofs with solar paneling can expect to receive $7,500 in tax credits after installation and $9,000 in savings over the life of the system on average.  These savings also equate to 30% of the total investment price.  Condominium Association owners claim their credit for improvements done to their building in much the same way they claim an itemized deduction for property taxes.  The amount of credit they receive is directly proportional to their owned share of the condominium building.

The third tax credit is the Alternative Fuel Vehicle Refueling Property Credit.  Homeowners who install a new electrical vehicle charger at their homes are eligible for this credit.  Owners can expect to receive 30% back on their initial investment come tax time.

Solar roofs, electrical vehicle chargers, and energy-efficient measures are not typically found in an Association’s Governing Documents.  As the American culture is shifted to one that is more energy-efficient, an Association’s Board of Directors and Community Association Managers should expect to see an increase in Architectural requests that include these modifications.  It may behoove an Association to make amendments to its Governing Documents that will include energy-efficient provisions.  At the very least, amending an Association’s Architectural Standards could assist an Association with making a smooth transition into an energy-efficient society.  Associations should always consult their Governing Documents for amendment procedures.  Managers can enlist the assistance of an attorney for legal advice on drafting and recording an amendment.