IRA to provide tax credits for environmental changes

The Inflation Reduction Act became law Aug. 16, moving billions for Western drought relief efforts and tax credits for environmental changes.
Landscape businesses could receive tax credits and funding for purchasing electric vehicles and adjusting to greener forms of energy.
The Inflation Reduction Act became law Aug. 16, moving billions for Western drought relief efforts and tax credits for environmental changes.

President Joe Biden signed the multibillion-dollar Inflation Reduction Act of 2022 into law Aug. 16, putting into formal motion funding including $4 billion for Western drought relief efforts and $370 billion for energy security and climate change.

The law is primarily targeted for ag-specific conservation programming and climate-smart investment, yet there are some components applicable to landscape professionals.

According to Andrew Bray, vice president of government relations for the National Association of Landscape Professionals, Fairfax, Virginia, the most important aspect of the IRA for the landscape side is the 30% electric vehicle tax credit which would help with the purchasing of new or used electric vehicles, such as electric lawn mowers. NALP was able to add mobile machinery as part of the electric vehicle tax credit.

To be eligible, lawn mowers must be more powerful than 7,000 kilowatt hours and less than 14,000 pounds. The tax credit, which takes effect for vehicle purchases starting in 2023, is capped at $7,500 for a piece of equipment.

Bray encourages landscapers wanting to take advantage of the electric vehicle tax credit to keep an eye out for guidance from the IRS.

“We think that’s fairly significant for the landscape industry to have this credit in there,” Bray says. “We are obviously working to try to get all electric equipment included, and we will continue to have those conversations with other lawmakers that could see that as a benefit as well.”

The IRA also brings a number of additional renewable energy tax credits to encourage companies to invest in green alternatives, like installing solar panels and relying on solar energy. These credits vary and are dependent on a number of factors and requirements, such as location, date and scale.

These tax rates, however, carry tax implications for landscape companies part of large corporations, as there is a 15% floor for corporations. And for corporations that receive investments from private equity, the impact will be slightly different, Bray says.

“There’s still going to be ways for those companies to basically write off a lot of their things and get their tax rate down closer to zero, which they have been historically,” Bray says.

The law will also create a $1.5 billion program that includes new payments for companies that cut methane emissions, with some penalties for firms that refuse.

Through the IRA, subsidies established under the American Rescue Plan to make health care more affordable for small businesses, their employees and the self-employed buying insurance on ACA exchanges will continue through 2025, according to the law.

Another possible impact for Western landscapers could stem from the drought funding. Administered by the U.S. Bureau of Reclamation, the $4 billion will go toward grants, contracts or financial assistance that intend to mitigate drought via voluntary reduced water use and diversions, water conservation projects, environmental efforts, and ecosystem and habitat restoration projects in drought-impacted river basins or inland water bodies, like the Salton Sea in California.

According to a press release submitted by Sen. Dianne Feinstein, D-California, the drought relief funding will also go toward conservation projects like lawn removal and canal lining to help increase available water. However, the formal text of the law does not explicitly mention lawn removal and thus could be up to the implementing agencies to establish such provisions, says Nathan Bowen, advocacy director at the Irrigation Association, Fairfax, Virginia.

“The investments the legislation would make in drought mitigation resources, energy efficiency and conservation programs are important for the irrigation industry,” says Bowen. “As the legislation is implemented, the IA will continue to advocate on behalf of the industry to make sure its interests are heard.”

To see about receiving funding or tax credits from the IRA, Bray urges landscape contractors and especially those in the West take a look at some of the federal government or local municipalities’ websites about possibly getting compensation for replacing a lawn or proving that installing smart irrigation technology reduced a client’s water use.

“Those are the type of things that landscape contractors and irrigation specialists will have an opportunity, I just don’t know what shape and form it’s going to look like yet until that money really goes out into these grants at the state and local levels,” Bray says.

“I’m optimistic that (the IRA) is good for climate change,” Bray says. “I think it’s good for some businesses with some of these tax credits, and there were also some important health care things that were worked out in that deal.”

McKenna Corson is the digital content editor for Irrigation & Lighting and can be reached here.

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