The Inflation Reduction Act of 2022 enhanced and created new income tax credits to support the investment into green-energy capital projects. Airports can benefit from these tax incentives even though they don’t pay federal income taxes. Here’s how.
The Inflation Reduction Act of 2022 (IRA) enhanced and created new income tax credits for investments in renewable energy, including solar and geothermal, and eco-friendly transportation, such as electric or hydrogen-powered vehicles. Thanks to the new elective payment feature available to organizations that don’t pay tax, governmental entities — like airports that have never filed federal income tax returns before — can now claim these tax credits.
The IRA incentives focus intensely on infrastructure, an area where airports regularly invest heavily. It’s important to understand the different types of projects commonly found in airport capital programs that may qualify for federal benefits and some of the avenues to maximize the amount of credit available. Likewise, airports should become familiar with some of the mechanics of claiming the credits as well as the supporting documentation an airport will need to maintain to support its claims for the credits in the event of an IRS examination. Here's what you need to know.
The IRA incentives focus intensely on infrastructure, an area where airports regularly invest heavily.
How the Inflation Reduction Act expanded the Investment Tax Credit
One of the first IRA changes that affects many entities like airports that regularly invest heavily in infrastructure projects is an expansion of the Investment Tax Credit (ITC). The purpose of the expansion was to include projects aimed at generating energy from renewable sources and, to a lesser degree, projects that help to store and manage energy more efficiently. Projects that improve an airport’s ability to store energy and consume resources more efficiently include installation of assets like:
Microgrid controllers
Energy storage units
Electrochromic or “dynamic” glass
In order to claim a credit for qualifying energy products like those listed above that don’t produce energy (except for geothermal heat pumps), an airport must be able to show that the work was started prior to Dec. 31, 2024. For instance, an airport that plans to claim a credit for installation of electrochromic glass must begin construction before the December 31 deadline.
ITC benefits are available as of Jan. 1, 2023, and extend beyond Dec. 31, 2024, for projects that more specifically generate power from renewable resources. Therefore, airports will be able to claim credits for projects that began before 2024 or begin after 2024 for costs associated with projects such as:
Solar power
Geothermal electricity production
Geothermal heat pumps
Inflation Reduction Act tax credits for installing refueling stations for alternative fuel vehicles
Another area where the IRA offered incentives to support alternative fuel infrastructure was the building of charging stations for alternative fuels. These credits would be available to support airports that add electric vehicle (EV) charging stations in their garages for the flying public or in employee parking areas to support personnel who commute to work in electric vehicles. Credits are also available for investments into ethanol, NG, LP, hydrogen, and biodiesel refueling equipment. Airports that install other sustainable transportation fuel refueling equipment may be eligible for the alternative fuel refueling equipment credit as well starting Jan. 1, 2025.
This section of the new law also focused on increasing these facilities in certain previously underserved areas, so one of the requirements to qualify for this benefit is that the facilities must be located in certain designated census tracts. If your airport is in an eligible census tract or has the option to place refueling stations in one, it’s important to plan ahead and carefully place the facilities within the lines that the government has set forth.
One of the requirements to qualify for this benefit is that the facilities must be located in certain designated census tracts.
Earn Inflation Reduction Act tax credits for acquiring hybrid or electric vehicles
Another IRA renewable energy credit is available for adding “clean fuel” vehicles to the airports fleet. The rules provide a tax credit to airports that use electric or hydrogen passenger vehicles, but also to those that might invest in heavier electric or hydrogen-powered mobile machinery. The U.S. Department of Energy’s National Renewable Energy Laboratory offers a helpful list of manufacturers that make electronic ground support equipment that could reduce fuel costs at the airport and generate significant tax credits.
Finding support to navigate unfamiliar territory with the Inflation Reduction Act
Since airports won’t have a history of filing federal income tax returns and claiming benefits like these, it’s an area in which many affected entities can benefit from outside help. Here’s a checklist of topics to consider in a discussion with advisors:
Help identifying qualifying projects. Experts who work with businesses affected by these credits on a regular basis can provide helpful insights on what projects at an airport may qualify for the credits, or even those portions of the costs related to those projects that qualify. It can be helpful for airports to share their capital plan in these discussions so that experienced advisors can help identify opportunities.
Prefiling registration. Because so many entities that haven’t had to file with the federal government before will start doing so to claim these credits, the law included a “prefiling registration” process to create an identifying number for each qualified project. A qualified advisor can help an airport to navigate this process to make sure that its credit-worthy investments meet the opening administrative requirements necessary to support the later claim for the credits.
Adequate documentation for compliance. There’s no doubt that the government will be watching these credit claims closely. In addition to the base credits, several of the benefits offer qualified entities like airports “bonus” credits for meeting certain requirements related to:
Prevailing wages paid to employees
Apprenticeship opportunities
Use of certain percentages of domestic-sourced materials in the content of the construction
Airports are typically familiar with providing documentation to granting agencies to support a request for funds. These credit claims will be different because they will be submitted based on the airport’s calculations and subject to review after the fact by the IRS. Effective advisors have considerably more experience dealing with the types of documentation that IRS agents request on examination. They can help airport recordkeepers compile and maintain adequate documentation to support their claims for these valuable credits.
Cost segregation study. An important part of documenting the costs eligible for the credit is a specialized version of a cost segregation study that focuses on what aspects of a project actually contribute to the energy savings. For example, if an airport pours concrete and creates a structure that will house a geothermal heating system, only some of the costs involved in the external building may qualify for the credit. An energy credit cost segregation study can help an airport to avoid claiming costs that are actually excluded from the credit by law.
Filing a tax return. For airports, this process will be the first time that they are required to file a federal income tax return. An outside advisor can help to make that process run more smoothly.
Coordination with legal counsel. Many of the steps that an airport needs to take to claim these credits will require specific considerations in legal agreements with contractors and suppliers of goods and services. Typically, with tax incentives, there’s a need for legal and accounting teams to coordinate within the process. Any outside advisor should have the capability to provide the appropriate level of service and support across all disciplines within the business.
Since airports won’t have a history of filing federal income tax returns and claiming benefits like these, it’s an area in which many affected entities can benefit from outside help.
The IRA energy tax incentives offer significant opportunities for airports to claim federal credits to reduce the cost of investments in energy-efficient infrastructure and other capital assets. While many airports will need to put in place new processes in order to successfully document the work and claim the credits, it’s clear that the potential benefits outweigh the costs of compliance.
