The recently passed Inflation Reduction Act has expanded incentives for contractors that design and install energy-efficient systems in certain buildings, including a bonus for those participating in apprenticeship programs and paying prevailing wages—right up the alley for many electrical contractors.

Once the new law takes effect in 2023, the full 179D energy-efficiency tax deduction will increase to $5 per square foot, up from the current full deduction of $1.88 per square foot that contractors can take, according to Phillip Ross, a partner at New York City-based accounting advisory firm Anchin.

“If you can take this deduction, it’s really found money,” Ross told Construction Dive.

The new law also expands the types of buildings that qualify, Ross said. Currently, owners of commercial buildings and those designing energy-efficient systems for government buildings can take the tax deduction. However, in 2023 those installing energy-efficient lighting, HVAC or building envelope systems for nonprofits, religious groups, educational institutions and tax-exempt entities can also qualify.

Eligible contractors must ensure that building owners assign them the 179D energy-efficiency tax deduction at the outset of any project to enable them to take the deduction, he said.

“It’s really more of an art to negotiate that allocation letter in the beginning to be able to get this benefit,” Ross said.

Under the new law, contractors will be able to receive a base deduction of $0.50 per square foot if the installed systems achieve a 25% energy savings, compared to the current threshold of 50% energy savings, he said. For each percentage point increase in energy savings, contractors can receive an additional deduction of $0.02 per square foot.

Then there’s the “bonus” deduction for paying prevailing wages and meeting apprenticeship requirements on such projects—$2.50 per square foot for buildings meeting the 25% threshold, and $0.10 per square foot above that, up to the $5 maximum.