Commercial Real Estate Tax Benefits in The Inflation Reduction Act

When you’re looking at funding options to buy or update your business’s space, the recently passed Inflation Reduction Act may have an impact on your decision.

The new law includes commercial real estate tax benefits for energy-efficient and renewable-energy renovations to existing buildings. It also includes benefits for constructing a new building that includes sustainable systems.

Learn how your business can take advantage of these tax benefits and work towards a more sustainable future!

The Inflation Reduction Act’s energy-efficiency incentives

Replacing old, inefficient systems in existing buildings or including renewable energy systems in a new building can sometimes be too expensive for small businesses. The Inflation Reduction Act aims to make it more affordable by expanding SBA 504 loan options and commercial real estate tax breaks.

Your project could be eligible for additional SBA 504 loans if you meet the SBA’s qualification criteria for this special initiative. Through this, you can get up to $5.5 million in financing for each renewable energy project.

The maximum lending limit for this new program is $16.5 million. This limit applies to all of your businesses and includes any existing SBA 504 loans or other SBA financing you’ve already received (SBA disaster relief loans aren’t counted towards this new limit). This makes it an incredible opportunity to use the SBA 504 program to create a positive impact on your business’s energy costs and your community.

By upgrading to an energy efficient system, you’ll be able to save on operational costs by lowering your utility expenses. You can do this by installing energy-efficient systems that help your business reduce its electricity and gas use, or by using systems like solar panels to generate your own power. As utility costs are expected to continue to rise, these upgrades will give you greater control over this expense.

Gain additional commercial real estate tax benefits

Outside of the additional SBA 504 financing, these projects also qualify for Inflation Reduction Act related commercial real estate tax benefits. This includes tax credits for buying a new building that uses sustainable design methods, or retrofitting an existing building.

As a result, your business can gain tax savings while reducing your overall operating costs, which can free up funds to support your business’s growth. You’ll also be taking an active part in reducing the impacts of climate change, which is already having significant adverse impacts on communities, people and local economies.

Remember, it’s important to check with your accountant before committing to any commercial real estate purchases, construction, or improvements. Your accountant or tax advisor will know about these incentives and can help you understand and take advantage of them.

How can you use commercial real estate tax benefits for your business?

To qualify for the tax benefits in the IRA you need to own the commercial real estate that you use for your business. Your other option is to construct a new building that incorporates sustainable-design, energy-efficiency and/or renewable-energy elements.

If you’re currently leasing your space, it’s worth your time to explore the SBA 504 loan program. It can help you buy your property or to construct the building of your dreams. The program includes many financial benefits and other perks for small business owners, and it’s easier to qualify and more affordable than you may realize.

Talk with your CPA or tax advisor about the program and how your business could benefit. In addition to making energy-efficient improvements far more affordable for small businesses, this program also includes tax credits and other incentives that can have a positive impact on your business’s bottom line. To be eligible, the energy reduction must be documented and certified by a third-party.

Once you gain a solid understanding of the potential benefits, work out how you’d approach your project. Would you improve your current building or construct a new one? What are the costs associated with your options? This will help ensure that you make the best long-term decision for your business.

You can finance Inflation Reduction Act related projects by using your own capital, conventional financing or SBA financing. If you’re interested in learning more about the SBA 504 loan program, talk to your commercial banker. While other options may be available, it’s hard to find a program that’s as beneficial overall.  

A quick snapshot of SBA 504 loan program benefits

The SBA 504 loan program was developed to help small business owners like you get the financing you need to buy or build commercial real estate and purchase fixed assets for your business. To qualify, your business needs to meet certain criteria and use most of the commercial space for your business (51% for existing buildings or 60% for new construction).

Here are some of the key benefits of the SBA 504 loan program for borrowers:

  • SBA 504 loans offer below-market fixed rates, no balloon payments and terms of up to 25 years. That means that you get a great rate and a loan that’s spread out over 25 years, making your monthly payment more affordable. Plus, your SBA 504 loan payment won’t change over the life of the loan.
  • Owner-equity requirements are as low as 10% (compared to 30%, which is typical of most commercial real estate loans). In addition, owner equity can come from a variety of qualified sources.
  • You can use the loan proceeds for multiple purposes, such as:
    • To buy an existing building
    • To renovate an existing building, including upgrading mechanical and other systems for energy efficiency and to incorporate renewable sources
    • To purchase land and cover the costs of constructing a new building
    • To purchase of major equipment

SBA 504 loans are large enough to finance major projects. The standard SBA 504 loan maximum is $5 million. With the Inflation Reduction Act, the maximum is increased to $5.5 million if your project meets an SBA Energy Public Policy Goal. Talk to your SBA loan officer to learn more about how your project can qualify.

Pursuit can help you get the financing you need for your next project

Pursuit’s experienced team leads the way for SBA 504 financing in New York, New Jersey, and Pennsylvania. We can explain the benefits of the SBA 504 program and have more than 15 other loan options that can help your business grow and succeed. Contact us today to learn more and find the funding that fits your needs.

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