Brownfield and Renewable Energy Tax Credits

The real estate industry is undergoing a significant transformation, driven by a growing emphasis on sustainability and environmental responsibility. As developers and investors seek to create more sustainable projects, government incentives, such as tax credits, have emerged as powerful tools to incentivize green initiatives.

This article will cover brownfield and renewable energy tax credits, exploring how these incentives can significantly impact your real estate development projects.

Understanding Brownfield Tax Credits

What are Brownfields?

Organizations must understand past developments and their environmental effects to cultivate sustainability in real estate initiatives. For instance, brownfields are underutilized or abandoned property where pollution complicates its reuse, redevelopment, or expansion.

Historically, brownfields are located within industrial operation sites near bodies of water and urban areas, as goods were once primarily transported via barges. Before the advent of environmental laws in the late 20th century, industrial operators and manufacturers disposed of waste as quickly as possible, generally dumping excess waste into land or waterways, which created these brownfields throughout neighboring urban communities.

New York Brownfield Cleanup Program (BCP)

The New York State Department of Environmental Conservation and the New York State Department of Health created the New York Brownfield Cleanup Program (BCP) in 2003. This program aims to encourage private sector cleanup and redevelopment of brownfields to revitalize economically challenged communities.

Since its creation, BCP has had three iterations, all focusing on the same initiative: redevelop absent credits and initiatives for sites outside urban areas.

Qualifying for Brownfield Tax Credits 

Brownfield sites are any real property where a contaminant is present at levels exceeding soil cleanup objectives or other health-based or environmental standards, criteria, or guidance adopted by DEC that are applicable based on the property's anticipated use.

To determine if a site qualifies for Brownfield tax credits, organizations can perform a phase one environmental assessment to evaluate whether contamination exists. Once there is analytical data to support contamination claims, phase two of the environmental evaluation begins. In this phase, one puts holes into the ground to test soil, groundwater, and soil vapor. If the data shows contamination, the site can apply for BCP.

From there, the application process goes as follows:  

1. Complete application
2. Apply to a state where it undergoes a completeness review.
3. Public notice period of 30 days
4. Eligibility determination is made.
5. If the eligibility determination is positive, the applicant would sign the brownfield cleanup agreement and send the state a check to cover the program administration costs.

Throughout this process, the goal is to maximize the overlap between construction and remedial measures so that construction measures qualify for Brownfield tax credits.

Benefits of BCP Participation

Brownfield redevelopment tax credit has three distinct components: preparation credit, onsite groundwater remediation credit, and tangible property credit. Each component has limitations, but one must recognize the benefits. For instance, a fraction will be applied to the cost if a site is eligible via the tangible property component. If you have a 30% affordable building, then only 30% of the costs would be eligible as the basis for the credit. By participating in BCP, communities can experience sustainable growth and revitalization.

Renewable Energy Tax Credits

Several federal tax credits, such as the Section 48 Investment Tax Credit (ITC) and the Section 45 Production Tax Credit (PTC), fall under the Inflation Reduction Act. These credits mirror previous tax credit frameworks as they help renewable energy systems and projects placed in service through 2024 and 2025.

Section 48 ITC vs. Section 45 PTC

With a greater emphasis on renewable energy and sustainability, section 48 ITC incentives solar, wind, and geothermal energy production. When companies invest in renewable energy properties, this credit is given by establishing an eligibility cost based on the energy system times a corresponding energy percentage, usually 30%.

On the other hand, the U.S. Internal Revenue Code provides a production tax credit under section 45 for buildings that produce electricity from renewable energy sources. For every hour that sustainable energy is produced, companies get a monetary percentage back via a tax credit to encourage them to invest in renewable energy.

Qualifying for Renewable Energy Tax Credits

Several avenues exist to qualify for renewable energy tax credits, as a property or investment often must meet various requirements, such as location. An eligible site must be on a brownfield site, a Metropolitan static area, or a former coal mining site. To determine if a site meets these requirements, one can look at maps and census data for an accurate area analysis.

The IRS has also issued guidance and safe harbor rules as to what qualifies for a brownfield site, stating that other qualifying metrics include: 

• A project is less than five megawatts in nameplate capacity.
• Phase one has been completed at the site, revealing the presence or potential of a hazardous substance as defined by C.
• Phase two confirms the presence of a dangerous substance as defined by Circla.

Maximize Your Benefits 

To maximize the benefits of brownfield and other renewable energy tax credits, it's essential to: 

• Work with Experienced Professionals: Consult with tax experts, environmental consultants, and real estate attorneys to navigate the complex regulations and optimize your tax strategy.
• Conduct Thorough Due Diligence: Carefully assess each project's potential tax benefits, considering site conditions, project scope, and applicable tax codes.
• Stay Informed: Stay current with changes in tax laws and regulations that may impact your projects.

By leveraging these tax incentives, real estate developers can reduce project costs, enhance financial performance, and contribute to a more sustainable future. To learn more, contact us below or watch our webinar to unlock more information and resources about energy and BCP tax credits.