While the Inflation Reduction Act of 2022 (IRA) presents a long list of potential opportunities for heavy highway contractors, it also has generated its fair share of questions.
The IRA is lengthy and complex, and as a result, heavy highway contractors often are left scratching their heads regarding the opportunities that the IRA is presenting and the steps they need to implement to take full advantage of those opportunities.
Setting the Stage
The IRA offers $499 billion in available funding and tax breaks for energy efficiency, one-third of which is earmarked for clean electricity tax credits. In all, the IRA features more than 70 separate tax credits. All but a few of those are entitlement credits — a small number are competitive and allocated — and the vast majority of the credits are good through 2032. Said simply, it is the longest U.S. “energy policy” timeframe in our nation’s history.
As noted in the chart below, the IRA features new credits with bonus features for manufacturing and energy production, as well as much-needed enhancements to existing credits and deductions, such as the 179D deduction that many contractors are already familiar with.
| Enhanced credits with enhanced features | New credits with bonus features |
| Biodiesel | Clean hydrogen |
| Biomass and trash facilities | Clean transportation fuels
|
| Carbon capture | Manufacturing (factory and unit production) |
| Combined heat and power | Qualifying biogas |
| Energy efficiency construction (commercial and residential) | Solar PTC |
| EV infrastructure and vehicles (commercial and residential) | Storage (e.g., batteries) |
| Hydro and geothermal | Sustainable aviation fuels |
| Renewable fuels | Zero emission nuclear |
| Solar | |
| Wind |
A credit is basically a dollar-for-dollar offset that business owners can use against their own tax liability. Under the IRA, if they do not have tax liability or taxable income, then they can sell certain credits to another taxpayer, which is known as transferability. Additionally, tax-exempt organizations (not-for-profits, governments, etc.) now have the option to receive a “direct pay” from the government instead of tax credits that, in the past, were not particularly valuable to these entities.
Generally speaking, these “direct pay” tax credits offer a 6% base credit for qualifying energy projects, and that number can increase by a multiple of five if the prevailing wage and apprenticeship requirements are met, and then it can increase by additional percentages based on domestic content, energy community requirements, and other factors.